By Dan Wilchins
NEW YORK (Reuters) - Two former Citigroup Inc
Randy Barker and Geoff Coley, two former heads of fixed income at Citi are in the very early stages of planning their fund, and will likely focus on distressed debt and other credit investment strategies, the sources said .
Coley declined to comment, while Barker did not return a call seeking comment.
Barker and Coley left Citi late last year as the extent of the bank's credit problems first came to light. The two presided over a group responsible for a significant portion of Citi's more than $45 billion in credit losses in the last three quarters.
But Wall Street is famous for second and even third acts. John Meriwether headed a desk involved in a trading scandal at Salomon Brothers and was a co-founder of Long-Term Capital Management, which lost billions of dollars in 1998, still managed to start another fund.
An individual's culpability for losses at an institution can be difficult to determine. When problems arise, innocent people sometimes shoulder the blame.
Barker and Coley will have to assuage investors that their fund won't post losses similar to those at Citi, experts said.
"Investors will have to develop comfort that Citi's woes were not caused primarily by these peoples' decisions," said Ron Geffner, a partner at law firm Sadis & Goldberg, which works with many new managers.
Barker and Coley are looking to hire traders and other employees and have had early conversations with potential investors, according to the sources.
Many start-up hedge funds are finding the current environment tough for raising capital. The weakening stock and credit markets have reduced investors' appetite for risk.
And competition may also be heating up. As Wall Street firms lay off traders, many are likely to look to start up hedge funds, and others are already trying.
Dow Kim, a former co-head of investment banking at Merrill Lynch & Co Inc
A number of Goldman Sachs Group Inc
(Reporting by Dan Wilchins, additional reporting by Svea Herbst in Boston; editing by Jeffrey Benkoe)