Citadel Hedge Fund: Its Management and Methods Achieve Success as a Firm of the Future
With a strong preference for trading on an electronic platform, the Citadel Investment Group, LLC may be providing the investment community with a window of enlightenment for the investment firm of the future. Modestly founded in 1990, by a young Ken Griffin, Citadel has grown consistently and is now recognized as a leader in investment management and related services. Citadel Limited Partnership now manages over $12 Billion in assets.
They are now ranked as one of the largest private capital managers in the world. Even more impressive, in the past 6 years, the Citadel Group has accumulated almost $5 Billion in value for its clients – more than the total of all capital under management at its inception! Matt Andresen, President of Citadel Execution Services, believes their reliance on electronic trading has much to do with their amazing success to date.
Their strong record of consistent success has vaulted Citadel into a rarified position of respect in the investment community. There is strong support for others to copy their blueprint of using technology and electronics to drive their growth and profitability. The company believes the key relationship that sets Citadel above the competition is the seamless integration of their state-of-the-art technology and exceptional employee team. This combination of T & T (talent and technology) allows Citadel to respond immediately to changing markets and both recognize and act upon profit opportunities across the globe.
Another view of Citadel’s corporate culture comes from global volatility arbitrage chief, Jason Lehman, who reiterates the company’s total commitment to technology. Electronic markets are faster, more efficient and more fair. Hence, we invest in markets that offer superior electronic abilities for quoting and execution of trades.
Controlling risk, always a high priority with all investment groups, particularly hedge funds, is one driving factor in Citadel’s success. Combined with its relentless research and 21st century trading strategies, this combination has generated excellent returns over the company’s life. Citadel’s original entity, the Wellington Fund, Griffin’s offspring back in 1990 in which only $4.6 Million was then invested, has enjoyed rates of returns annualized at over 25% since 1998. Using sophisticated quantitative research that identifies alternative strategies, while statistically modifying dated trading models, Citadel hunts for “high risk adjusted returns” for their clients. All of these processes follow an active multi-strategy interface with worldwide markets.
An interesting example of the dedication to technological ideals is found in the mix of Citadel’s employee team. The company has offices in Chicago (headquarters), Tokyo, San Francisco, New York, and London. Employing almost 1,000 people worldwide, over 50% of their staff members are IT professionals, not investment people! Even their investment advisor group is a bit unusual as it includes former university professors, meteorologists, astrophysicists, mathematicians and even some experts in “string theory.” Many of these individuals are not in pure research positions, as you might expect, but in influential trading functions also.
Citadel enjoys a wide diversity of clients, including numerous major corporations, foundations, pension funds and university/private endowments. They have attracted other institutional investors, always holding the mitigation of risk in high regard, primarily because of their history of consistently enjoying the high risk-adjusted returns they specifically target with their multiple strategy approach.
But what of their founder, Ken Griffin? While he maintains a dominant presence in fund management and has been a driving force in the company’s impressive record of success, he, as always, prefers to maintain a background persona versus the dominant public face fund managers of his stature often adopt. From his humble start, which involved creating a bond arbitrage model, Griffin made trades right from his dormitory room while at Harvard University. The timing factor, always important, played a role in the investment life of the entrepreneur. Without complicated investment relationships Griffin took advantage of black Friday in October, 1987, as all markets crashed. Using his theoretical arbitrage model, he identified and aggressively attacked new markets, including bonds issued by European entities and a variety of Japanese equities.
From these modest beginnings, Griffin has grown his firm and its affiliates to the enviable level of currently accounting for almost 2% of the daily dollar volume that is traded on the New York Stock Exchange and NASDAQ – combined. Unlike many of his contemporaries, Ken Griffin continues to maintain and define his role as maestro and team builder, not investment genius. When pressed, he defuses discussion of his personal achievements and focuses primarily on the successes of his team and Citadel as a company.
Citadel’s continuing goal is to focus on leadership development and downplay a superstar corporate culture. They stress the critical importance of teamwork by outstanding individuals, who are committed to learning, excellence and winning. The management team strongly believes that this philosophy, combined with their state of the art electronic trading ability, gives them the ability to immediately capitalize on emerging opportunities around the globe and generate profits in a wide variety of markets.
While Citadel is technically viewed as a hedge fund, in reality it is so much more than that. With its interesting mix of investments and its true global presence and influence, the company has both transformed and transcended the hedge fund arena. With six primary and very different investment strategies, Citadel is involved in almost all classes of assets. Their combination of intense and the diversified research backed by their cutting edge technology platforms have allowed them to achieve success in all six areas of concentration, including
- Global Markets and Quantitative Strategies
- Global Energy
- Global Interest Rates
- Global Value Investments
- Global Equities
- Global Credit