|On Wednesday, Barclays plc announced that a group of 45 of its bankers were spinning off from its Barclays Capital unit to launch hedge fund manager C12 Capital Management LP. Led by Stephen King and Michael Keeley, the new firm will manage a newly created hedge fund called Protium Finance LP, which will take management of $12.3bn of Barclays’ credit market investments. According to the press release, “the activities of Protium will initially be supported by $450m of new funding provided by the partners of Protium and by a loan to Protium of $12.6bn by Barclays.”|
Stephen King previously headed Barclays Capital’s Principal Mortgage Trading Group, while Michael Keeley was a member of Barclays Capital’s management committee with responsibility for covering European financial institutions. Neither Barclays nor any of its employees will be investing in C12 Capital or the Protium hedge fund.
According to an article from the Times, C12 Capital Management expects to earn management fees of approximately $40 million a year for ten years from Protium. C12 Capital’s employees will also avoid any potential pay limits imposed by G20 countries by domiciling the new entity in the Cayman Islands.
While the move will soften the impact on Barclays if the value of the assets continues to fall, the bank has also sacrificed any potential positive effects if the assets recover in value, and in such a scenario this group of bankers stands to make much more than $400 million. Though the apparent transfer of value away from Barclays is puzzling to some analysts, the idea for the shift came from both sides of the table and ultimately decreases Barclay’s vulnerability, making the exposure from the toxic assets look like any other loan.
C12 Capital’s “assets comprise structured credit assets insured by monolines ($8.2bn), RMBS/Other ABS assets ($2.3bn) and residential mortgage assets ($1.8bn) held in Barclays Capital. Structured credit assets comprise assets with a fair value of $3.6bn and monoline guarantees valued at $4.6bn. At the date of the Transaction, the $12.3bn book value of the Assets was net of credit reserves of $2.3bn for the associated monoline exposure.”