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, has made clients in his hedge fund 14 percent this year, boosting efforts to win new investors and replace money the bank has started to pull from the fund.

Ahead of new U.S. rules banning banks from gambling with shareholder capital - known as proprietary trading - Roumani shifted his team into JP Morgan's asset management arm, unlike colleagues 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 markets including on instruments linked to the health of European banks.

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

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

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

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

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

Fellow prop traders Mike Stewart and Deepak Gulati decided against joining him in the new unit. Stewart now heads up Whard Stewart Asset Management, while Gulati is raising capital for a Swiss-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 and time-consuming the environment now is for raising new assets.

"JPM has always been totally supportive of us... We have an economic 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 the 2008 financial crisis, driven by regulatory curbs on trading and on the money they can make at banks, including requirements they defer big chunks of their pay.

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

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

(Reporting by Tommy Wilkes)

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