JP Morgan's Roumani returns 14 pct as bank begins fund exit

* Prop trader Roumani shifted into asset mgmt arm

* JP Morgan cuts its capital in credit fund by 25 pct

* Roumani to cap fund's size at $1 bln

By Tommy Wilkes

LONDON, Oct 10 (Reuters) - Fahad Roumani, the JP Morgan"prop" trader still making bets with the bank's capital, hasmade clients in his hedge fund 14 percent this year, boostingefforts to win new investors and replace money the bank hasstarted to pull from the fund.

Ahead of new U.S. rules banning banks from gambling withshareholder capital - known as proprietary trading - Roumanishifted his team into JP Morgan's asset management arm, unlikecolleagues who opted to leave the bank and launch on their own.

Roumani's JPS Credit Opportunities Fund, which JP Morgan

launched last year with $350 million of its own capital,has profited from bets on dislocations in fixed income marketsincluding on instruments linked to the health of European banks.

"Periods of market volatility have been better for us thanbenign periods," Roumani told Reuters in an interview.

Fresh injections of capital by central banks has stoked astrong rally in credit markets in recent months, but Roumanisaid this will create further dislocations once the run fades.

"The more volatility you get it's just inconceivable thateverything will move together...This creates opportunities toput shorts on companies you know are going to be reportingpretty bad results in a couple of weeks," he said.

JP Morgan is one of several banks trying to hold on to someof their proprietary traders, supplant their own capital withoutside investor cash and retain ownership of the fund - as wellas the chance to earn lucrative performance fees in future.

The bank cut its stake in the Credit Opportunities Fund by aquarter this month, leaving Roumani managing just shy of $500million. It is the first of four planned withdrawals so that bymid-2014 JP Morgan has pulled all its capital, Roumani said.

Fellow prop traders Mike Stewart and Deepak Gulati decidedagainst joining him in the new unit. Stewart now heads up WhardStewart Asset Management, while Gulati is raising capital for aSwiss-based fund set to launch in 2013, hedge fund sources say.

Roumani, who will cap the size of his fund at $1 billion,said he decided against launching on his own given how tough andtime-consuming the environment now is for raising new assets.

"JPM has always been totally supportive of us... We have aneconomic agreement with JPM which is pretty attractive (versus)the seed agreements we would have got outside of the bank."

Dozens of traders have left banks for hedge funds since the2008 financial crisis, driven by regulatory curbs on trading andon the money they can make at banks, including requirements theydefer big chunks of their pay.

Roumani said this was not proving a problem in holding on tostaff and that his team of 20 - including nine on the investmentside - had all stayed with him since the move.

"Generally the whole hedge fund industry is going to movetowards more deferred remuneration," he said.

(Reporting by Tommy Wilkes)

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