David Messer and Frank Gallipoli, who are the founders of a commodity firm that grew to become RBS Sempra, plan to launch a new private-equity backed company, Reuters reported. The new firm will be called Freepoint Commodities. It will be backed by buyout shop Stone Point Capital LLC of Greenwich, Conn.
(Reuters) – The founders of one of the most successful commodity firms of the last 20 years launched a new private-equity-backed company on Thursday, vowing to grow a global oil and metals trading giant to rival their original firm which grew to be RBS Sempra.
David Messer, the former CEO of RBS Sempra, said the new firm, Freepoint Commodities, is a tie-up with former business partner Frank Gallipoli and private-equity firm Stone Point Capital. He said it would outperform most financial firms in energy and metals trading.
“This will be a trading company, a commodity merchant. Our intention is to grow as opportunities present themselves to become a global commodities firm,” Messer said in a telephone interview with Reuters.
“We believe we will have — and be able to offer — superior opportunities to talented individuals within financial firms.”
The move is the latest instance in which a private equity fund has stepped in to finance a proprietary trading shop, as banks face tougher government restrictions on trading for their own books.
Messer and Gallipoli founded Sempra Commodities in the 1990s and grew it to be one of the most successful energy and metals traders in the world, before forming a joint venture with banking giant RBS in 2008.
But the joint venture left many of the firm’s traders cold. Used to the freewheeling, rough and tumble world of traditional commodity houses, the restrictions and bureaucracy of a multi-national bank left many feeling disillusioned.
Sempra’s joint venture with RBS came to an abrupt end in 2009 after RBS was forced to slim down by European Union state aid concerns following a multibillion-dollar bailout by the British government during the financial crisis.
RBS Sempra Commodities was largely sold to JPMorgan, but many ex-Sempra traders left to join other commodity houses feeling they had swapped one alien culture for another.
Messer, Gallipoli and former chief operating officer Rob Feilbogen — who will also join Freepoint — all parted from RBS Sempra last spring.
Freepoint Commodities will be based in Stamford, Connecticut, close to RBS Sempra’s old U.S. offices and near Stone Point Capital in Greenwich, Connecticut.
Messer said they would aim to expand the firm “organically” in the coming years, perhaps with offices in the commodity trading hubs of London, Geneva and Singapore.
HUNDREDS OF MILLIONS
Messer said the new firm was backed by several hundred million dollars of capital that had been invested by himself, Gallipoli and Stone Point and would focus initially on energy and base metals trading.
He declined to comment on the exact amount invested by each member, but the total is under $500 million according to Charles ‘Chuck’ Davis, CEO of the $10 billion Stone Point Capital fund, which is backing it.
Jason Schenker, president and CEO of Prestige Economics in Austin Texas, said the move showed private equity firms are looking to diversify their investments.
“If you invest in good people and good trading strategies you can make a lot of money trading commodities. There’s still a lot of interest in this space,” Schenker said.
“It has been a difficult two years for private equity firms and they’re increasingly looking to invest directly into hedge funds and commodity traders to help generate better returns.”
Davis of Stone Point said the new firm would start in physical energy and metals. It may expand into other commodities by the time it starts trading in the first quarter of 2011, depending on the background of the traders it can attract.
The new firm is a likely landing spot for traders in the relatively secure world of banking who yearn for a shot at growing a new, private commodity trading house.
While commodity markets are volatile, the rewards at successful private firms can be huge.
Glencore, the world’s biggest commodity trader, is valued at more than $35 billion having been founded in 1974 by Marc Rich, the billionaire trader who was indicted for tax evasion and running illegal oil deals with Iran. Rich was pardoned by Bill Clinton in the last days of his presidency, a move that drew sharp criticism.
Privately held Glencore is considering listing next year in an IPO that could bring 10 billion pounds sterling, making it one of the biggest ever London flotations. [ID:nLDE6AH0N2]
Messer is not the first commodity trader to tap private equity cash.
In September, a senior Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) commodity executive and a team of traders left the bank to set up a hedge fund backed by the private-equity Blackstone Group.
Banks are changing their trading businesses to comply with the Volcker rule, part of a broader financial reform law that limits the extent to which banks can bet with their own capital.
If more commodities trading firms are launched, banks could lose traders to the new entities that are not so tightly bound by the new rules.
There are some traders already looking for opportunities. Messer and Gallipoli are both said to command a lot of respect among former employees.
After most of RBS Sempra Commodities was sold to JPMorgan this year for around $1.8 billion, the bank cut up to 50 people from its enlarged commodities trading business in July following the takeover.
(Reporting by David Sheppard; Editing by Jonathan Leff, Alden Bentley, Sofina Mirza-Reid and David Gregorio)