|Private company, Limited Liability Company|
|Industry||Financial market, Hedge fund Management|
Chicago, Illinois, USA
|AUM||US $24 billion|
Number of employees
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 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 Business segments
- 2 History
- 3 Offices
- 4 Accolades
- 5 See also
- 6 References
- 7 External links
As of February 2015, Citadel manages about $24 billion in investment capital and is one of the world's largest alternative asset managers. Citadel is the eleventh largest hedge fund manager in the world, and the second largest multi-strategy hedge fund manager in the world. Citadel's group of hedge funds rank among the largest and most successful hedge funds in the world.
Citadel's alternative asset management business segment uses five principal strategies including equities, commodities, fixed income and macro, quantitative strategies, and credit.
Citadel's largest funds are the Kensington and Wellington funds.
Kensington and Wellington
In 2011, the funds capped off two years of solid returns from 2009 and 2010 by crossing their high-water marks with gains of more than 20 percent, outperforming the industry average of 5 percent losses. Kensington and Wellington posted returns of about 25 percent in 2012, completing their recovery from the financial crisis.
Citadel Securities was established in 2002 and 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 at the NYSE and NASDAQ. The unit consists of a sales and trading platform, along with a market making franchise. Citadel Securities offers services to both retail and institutional clients through Citadel Execution Services (CES) Retail and CES Institutional. Citadel Securities has expanded throughout the years by offering over-the-counter securities and private electronic trading through its automated market making and execution service business.
Citadel Securities trades approximately 13 percent of U.S. consolidated volume in equities and 20 percent of U.S.-listed equity options volume. Citadel Securities makes markets in more than 7,000 U.S.-listed securities and in over 18,000 OTC securities worldwide. CES accesses liquidity in over 30 countries, including every U.S. equities exchange and all major dark pools.
Citadel Technology, established in 2009, is the wholly owned and independently operated affiliate of Citadel. It offers investment management technology, developed internally at Citadel, to a wide range of firms and funds.
In 2013, Citadel Technology announced a partnership with REDI. The partnership combines Citadel's order management system (OMS) with REDI's execution management capabilities (EMS).
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.
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."
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.
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.
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.
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.
Citadel employs more than 1,250 individuals globally with its flagship operation located in the Citadel Center, a $355 million office tower in the heart of downtown Chicago. The 39-story Citadel Center office tower opened in 2003 with Citadel as its anchor tenant.
Citadel also has offices in New York, Hong Kong, San Francisco, Boston, Dallas, London, Houston, Greenwich, and Toronto.
Citadel has been ranked among the top five firms in the industry, including by Alpha Generation, Infrastructure and Investor Relations, and the company has been acknowledged within the financial industry through various awards and accolades:
Absolute Return Awards:
- At the 2013 Absolute Return Awards hosted by HedgeFund Intelligence, Citadel was a recipient of the Global Macro award.
- Citadel received three awards at the 2012 Absolute Return Awards for Global Equity, Long Term Performance (5 years), and the overall award of Fund of the Year.
- Bloomberg ranked Citadel as 16 out of the 100 Top-Performing Large Hedge Funds in 2013.
- At the 2012 HFM Week US Performance Awards, Citadel received awards for Single Manager Long Term (3 years) Performance and Management Firm of the Year.
- Citadel received the Multistrategy Hedge Fund of the Year award in 2013 and 2014.
- The company also received the award for Institutional Hedge Fund Manager of the Year in 2014.
- The publication has also ranked Citadel among the top five hedge funds in categories such as Investor Relations (1), Infrastructure (2), Transparency(5), and Alpha Generation (5) on their 2012 Hedge Fund Report Card.
Great Places to Work
- As of 2015, Citadel's workplace and corporate culture received a Great Rated designation with a rating of over 90% in each category on Great Places to Work
- Kenneth C. Griffin
- The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It
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- Citadel LLC home page
- Pictures of Citadel Center in Chicago
- Data management agreement between Citadel and Accenture