|Type||Private company, Limited Liability Company|
|Industry||Financial market, Hedge fund Management|
Chicago, Illinois, USA
|AUM||US $24 billion|
Citadel LLC (formerly known as Citadel Investment Group, LLC) is a global financial institution based in Chicago, Illinois. Founded in 1990 by Kenneth C. Griffin, the firm today deploys capital across multiple asset classes and strategies. Citadel's main activities also include equity and options market-making. Citadel is among the largest firms to practice order flow internalization, which accounts for a significant amount of its revenue.
- 1 Citadel (Hedge Fund)
- 2 Citadel Securities
- 3 Citadel Technology
- 4 Business activities
- 5 Accolades
- 6 Credit Market Derivatives Exchange
- 7 Other information
- 8 See also
- 9 Notes
- 10 External links
Citadel (Hedge Fund)
Kensington and Wellington Funds
Citadel's flagship funds, Kensington and Wellington, posted returns of about 25 percent in 2012. In 2011, the funds capped off 2 years of solid returns in 2009 and 2010 by crossing their high-water marks with gains of more than 20%, outperforming the industry average of 5% losses.
On October 31, 2008 Fitch Ratings downgraded the Issuer Default Ratings and senior debt ratings of Citadel's Kensington Global Strategies Fund, Citadel Wellington LLC and Citadel Finance LLC, placing the ratings on Rating Watch Negative pending notification of redemptions.
Fitch stated that they are "concerned that the recent performance of Kensington and Wellington and future challenges to the broader market may increase redemption requests in 2008 and into 2009, eroding the funds' capital cushion." Despite this concern, Fitch analysts also noted that “Citadel will be a long term survivor of this market shakeout given its innovation in funding and expansion into businesses that move beyond asset management.”
Also in October 2008, S&P lowered the outlook for Citadel's Kensington and Wellington Fundsfrom 'stable' to 'negative', citing a 'heightened risk of significant redemptions, challenging performance prospects due to highly volatile capital markets and a very difficult funding environment.'
On November 18, 2008, S&P downgraded the counterparty rating for its Kensington Global and Wellington hedge funds to BBB/A-3 from BBB+, reflecting the investment losses from September and October. However, the agency did note that “Redemptions for the quarter ending December 2008 are reported to be less than 10 percent of investment capital of the funds and sources of borrowing are still diversified."
On December 4, 2008, the Wall Street Journal revealed that the largest Citadel funds lost 13 percent in November, bringing the losses for the year to 47 percent. By comparison the Hedge Fund Research HFRX US Global Hedge Fund Index is down 22 percent this year. Losses came from positions in convertible bonds, bank loans and investment grade bonds. Citadel rebounded from its 2008 losses to post a $5 billion profit through November 2009.
An April 2005 Bloomberg news article noted that David Shaw's D.E. Shaw & Co., which then had $14.7 billion in assets under management, and Tudor Investment Corporation both had fewer than half as many employees as Citadel does. It stated that unlike most other hedge funds where investors are charged a flat management fee of 1–2 percent ofassets and 20 percent of profits, the investors that invest in hedge funds managed by Citadel bear the entire cost of running the company, a bill that historically has equaled 3–6 percent of assets for the computer systems and larger-than-average staff. Morgan Creeks' Yusko was quoted as saying, "Their expense structure is high compared with others. Ultimately, we overlooked it because their returns were so high."
It was reported in 2008 during the financial crisis that the funds were down 50%. At this time Citadel announced that they would cover a large portion of that year's operating expenses.
The local press has called Citadel "Chicago's revolving door." (People close to the firm say turnover is on par with a typical investment bank's.) Commenting on this reputation, Mr. Griffin has said, “People say...It’s a tough place to work. It’s demanding. It’s unrelenting. I look at these as strengths inherent in strong companies...I’m very proud that we have a sterling reputation when it comes to doing what we say we’re going to do.” Mike Pyles, former Head of Human Resources at Citadel stated that, "When the markets change, we don't accept lower returns. We aren't that kind of firm. We expect the manager to go and figure out how to make money in the new market. We make no apology for it."
A 2005 Bloomberg interview noted that "[Griffin] keeps a row of management-theory books on a credenza behind his desk, and he says he tries to emulate one of America's most celebrated business leaders, former General Electric Co. CEO Jack Welch." Griffin is the son of a former GE project manager.
Philip Halpern, former endowment manager of the University of Chicago, stated, "I like to see some broad experience set when I invest in managers. My concern is that Citadel doesn't have that. The turnover has been too high over the years."
Proud of Citadel’s growth, Griffin has stated, “The name Citadel means strength and it speaks to our culture of performance, risk management and our ability to succeed in volatility."
Ownership and Financing
Despite prior talk in Wall Street that Citadel was considering an IPO and that Mr. Griffin mentioned the possibility in an interview, in April 2006, a spokesperson for Citadel said the firm currently had no such plans. However, in November 2006 Citadel became the first hedge fund management company to issue bonds. In a bond offering led by Lehman Brothers and Goldman Sachs, Citadel announced it would sell $2 billion worth of notes. The bonds have been given an investment-grade rating by Standard & Poor's. Citadel has repurchased approximately $200M of its debt on secondary markets since March 2008.
Although Citadel employs over 1,150 individuals globally, its flagship operation is located in the Citadel Center, a $355m office tower in the heart of downtown Chicago; in 2006 the tower was purchased for $560m by Robert Gans.
Citadel also has offices in New York, Hong Kong, San Francisco, Boston, Dallas and London
Of the 100 largest hedge funds, Citadel's is the only one based in Chicago. Citadel is the eleventh largest hedge fund manager in the world; it is also the second largest multi-strategy hedge fund manager in the world.
Formerly called Citadel Derivatives Group, Citadel Securities was established in 2002 and today is one of the leading retail equity and listed equity options market makers in the U.S., executing one out of every four retail trades. It consists of a sales and trading platform, and a market making franchise. Its current CEO is Jamil Nazarali who has served as Head of Citadel Execution Services since June 2012. It offers services to both retail and institutional clients through Citadel Execution Services (CES) Retail and CES Institutional.
Citadel Securities trades approximately 14% of U.S. consolidated volume in equities and 19% of U.S.-listed equity options volume. Citadel Securities makes markets in more than 7,000 U.S.-listed securities and in over 19,000 OTC securities worldwide. CES accesses liquidity in over 35 countries, including every U.S. equities exchange and all major dark pools.
Included in the Citadel group of companies, Citadel Technology is an independently operated technology solutions provider. They offer investment management technology to a wide range of firms and funds.
Financial Crisis (2005–2008 developments)
A 2006 report from Dresdner Kleinwort Benson raised concerns that hedge funds could pose systemic risk to the financial markets, using Citadel's disclosed information as a case study and stating that "at face value, and without being able to look into the black box, the balance sheet of today’s Citadel hedge fund looks quite similar to LTCM."
In a 2005 interview with Harvard College Investment Magazine, Griffin had previously observed, “I don’t think any industry has attracted as much capital over such a short period of time throughout history. With that much capital flowing into the business, it is reasonable to conclude that the prospect for better than market returns going forward is bleak.” He noted the same year that, "We're subject to the same forces of capitalism that have built the entire American economy. Strong returns induce more capital flow, which creates more competitors, and you have to evolve and get better, or you die."
On December 8, 2008, Bloomberg News said that Citadel would be closing down its Tokyo Office and Asian principal investments operations, cutting more than half its jobs in the region and running its remaining Asian operations from Hong Kong.
Mr. Griffin also said in December 2008, that the recent turmoil has created the best opportunities he's seen since he started trading roughly 20 years ago: "We're very excited about the positions in our portfolio in the months and years ahead.” Also, Mr. Griffin noted that “Citadel's market-making business has performed ‘spectacularly’ this year and will be a major growth driver for the firm in future."
Citadel also has multiple subsidiaries such as Kensington Global Strategies (Citadel's largest fund), Wellington Partners (Citadel's oldest fund and its flagship fund), Citadel Equity Fund, Citadel Finance, and Citadel Derivatives Group, which controls 10% of the Philadelphia Stock Exchange. In 2000, Citadel's Wellington affiliate achieved a 52.6% return. Since January 2005, Citadel Derivatives Group has been a Lead Market Maker on the trading floor of the Pacific Coast Exchange. In a strategic partnership with about ten other financial institutions, Citadel Derivatives Group is also a joint owner of the International Securities Exchange.
In 2007, Citadel acquired a sizable stake in online brokerage E*Trade. A Bloomberg News story on September 5, 2008 reported that Joe Russell, a Citadel senior managing director who led the negotiations to acquire E*Trade left after his division suffered losses on the year. Citadel's acquisition of E*Trade was announced when its shares were trading at $4.82.
On June 2, 2010 E*Trade had a one for ten reverse split, based on the current stock, $4.82 would equal $48.20 per current share.
A Reuters story on November 21, 2008 reported that E*Trade's continued existence would likely depend on whether it received funds from the US Treasury under the Troubled Asset Relief Program (TARP). Its shares traded at 87 cents, down approximately 84% from the time Citadel acquired its $2.55 billion stake implying a possible loss of as much as $2.14 billion for Citadel on its equity stake. Citadel has publicly stated in an SEC filing (2011) that its losses since the fourth quarter of 2007 (pre-tax) are over $5B USD. It also chastised the current board for 'squandering' shareholder value, pressed E*Trade to eject two boardmembers, and pursue a sale of itself.
Closed, sold or liquidated business activities
Capital markets business
Hedge fund administration
In October 2008, Citadel named Rohit D’Souza as CEO for the firm’s growing capital markets business. The capital markets platform also includes Citadel Solutions, a hedge fund administration business launched in 2007 that serves hedge funds with a total of more than $30 billion in assets under administration. In 2009, Citadel Solutions’ name was changed to Omnium LLC and in 2011 Omnium was sold to Northern Trust.
D'Souza left the firm in October 2009, and Todd Kaplan, former head of investment bank, left in January 2010. In August 2011, the whole three-year investment banking initiative was reportedly being liquidated, with the possible sale of parts of the business.
New Castle Re
In 2004, Citadel founded CIG Re, a Bermuda-based catastrophe reinsurer. In 2005, the hedge fund founded a $500 million catastrophe reinsurer in Bermuda called New Castle Re. Subsequently, in 2009, Citadel sold New Castle Re and CIG Re and exited the reinsurance industry.
Rating agency [A. M. Best] has placed its A- rating of Citadel-owned insurer New Castle Re's under review, given "continued deterioration faced by their primary investors, Citadel Kensington Global Strategies Fund Ltd. and Citadel Wellington LLC" New Castle Re was closed in 2009, when Citadel exited the reinsurance industry.
Fusion fund of funds
On October 30, 2008, it was announced that Citadel is winding down its $1 billion Fusion fund of funds, and has reallocated these assets to emerging hedge fund managers.
- Best Global Hedge Fund award (2007)
- The Hedge Fund Report Card "Grade A" (2012)
- Ranked fourth overall out of 55 funds (2012)
- Ranked top 5 in: Investor Relations (1), Infrastructure (2), Transparency(5), and Alpha Generation (5) (2012)
- Multistrategy Hedge Fund Manager of the Year (2013)
Hedge Fund Intelligence
Absolute Return Awards
- Relative Value/Arbitrage Award.(1998, 1999)
- Fund of the Year - Citadel Wellington (2012)
- Global Equity - Citadel Global Equities (2012)
- Long Term Performance (5 years) - Citadel Tactical Trading (2012)
- 100 Top-Performing Large Hedge Funds (2013)
- Single manager long-term performance (3 years) over $1bnCitadel Wellington (2012)
- Management firm of the year (2012)
Credit Market Derivatives Exchange
In March 2009, Citadel and the CME Group announced they had received SEC approval to launch a joint clearing and exchange solution for the $43 trillion credit default swap (CDS) market, called the Credit Market Derivatives Exchange, or CMDX. In addition to improving transparency, the exchange offers immediate confirmation of trades, avoiding the operational risks associated with unconfirmed CDS transactions. In an interview Citadel's Ken Griffin and Craig Donahue, CEO of the CME Group, confirmed that the platform is up and ready and that interest has been high.
Credit default swaps play an important role in a company's risk management procedure, which has made CMDX a compelling solution as institutions seek "transparent, secure and liquid market alternatives,” said CME Group Executive Chairman Terry Duffy. The creation of the exchange was proposed as a solution to one of the many causes of the financial crisis of 2007–2010, as its transparency can provide regulators with immediate access to positions and trading information.
Citadel LLC is not related to any of the following organizations:
- Citadel Equipment Finance, Equipment Financing and Leasing
- Citadel Investment Services, a South Africa-based wealth management group
- Citadel Investments, a New York based mortgage broker
- Citadel Group, a Chicago based healthcare financing organization
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- Citadel LLC home page
- Pictures of Citadel Center in Chicago
- Data management agreement between Citadel and Accenture