|Industry||Hedge fund management|
Chicago, Illinois, US
Number of employees
Citadel LLC (formerly known as Citadel Investment Group, LLC) is an American global financial institution. Founded in 1990 by Kenneth C. Griffin, the company operates two primary businesses: Citadel, one of the world's largest alternative asset managers with more than US$32 billion in assets under management; and Citadel Securities, one of the leading market makers in the world, whose trading products include equities, equity options, and interest rate swaps for retail and institutional clients.
As of January 2016, Citadel manages more than $29 billion in capital and is one of the world's largest asset managers. Citadel ranks as the eleventh largest hedge fund manager in the world, and the second largest multi-strategy hedge fund globally. Citadel's group of hedge funds rank among the largest and most successful hedge funds in the world. The hedge fund's assets under management has increased by 29% and more than $10 billion since 2014.
In 2014, Citadel became the first foreign hedge fund to complete a yuan fundraising as part of a program to allow Chinese investors to invest in overseas hedge funds.
Citadel Securities was formed in 2002, and is a market maker, providing liquidity and trade execution to retail and institutional clients. Citadel Securities automation has resulted in more reliable trading at lower costs and with tighter spreads. Barron's recently ranked Citadel Securities #1 in providing price improvement for investors in both S&P 500 and non-S&P shares.
Citadel Securities makes markets in more than 7,000 U.S.-listed securities and in about 18,000 OTC securities worldwide. Citadel Securities is the largest market maker in options in the U.S., executing about 25 percent U.S.-listed equity options volume. According to the Wall Street Journal, about one-third of stock orders from individual investors is completed through Citadel, which accounts for about 10% of the firm's revenue.
In 2014, Citadel Securities expanded its market-making offering to interest-rate swaps, one of the most commonly-traded derivatives. According to a report in the March 2015 edition of Risk Magazine, Citadel provides quotes to traders in an average time of 0.35 seconds, compared to 2.05 seconds for the next closest market maker. The move into derivatives trading aligns with mandatory clearing requirements under the Dodd-Frank Act, a provision intended to prevent a future Lehman Brothers-style collapse.
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.
Ken Griffin launched his trading career out of his dorm room at Harvard University in 1987, with $265,000 raised from friends and family. As a sophomore, he traded convertible bonds and hooked a satellite dish to the roof of his dormitory. After graduating with a degree in economics, Griffin joined Chicago-based hedge fund Glenwood Partners.
According to a New York Times report, Citadel was started with $4.6 million in capital. Citadel was originally named Wellington Financial Group after its flagship fund. The company name was changed to Citadel in 1994. Within eight years, the firm had more than $2 billion in assets.
In 1998, Citadel started requiring investors to accept terms that "restrict[ed] their ability to withdraw their capital", according to Institutional Investor. When fund Long-Term Capital Management collapsed later that year, Citadel's capital lockdown made it "a rare buyer, as desperate hedge funds unloaded bond inventory".
The 2008 financial crisis
During the 2008 financial crisis, the firm's Kensington and Wellington Funds lost 55 percent of their value by the end of the year. Griffin said, "we were losing hundreds of millions of dollars a week, if not more. CNBC parked a van in front of Citadel, waiting to break the story of our demise."
Citadel suspended shareholder redemptions, which Griffin called one of the "most difficult decisions" in Citadel history. Griffin later conceded that the firm was "overly confident" it could "weather any financial storm". He covered all investor management expenses during that period.
On January 17, 2012, Citadel's flagship funds crossed their respective high water marks, earning back the losses from 2008. Griffin stated, "We did exactly what we said we would do, and we did it the right way. The world changed dramatically in 2008, and we adapted our capabilities and resources to successfully compete in this new environment."
Risk management - Citadel's investing approach changed following the 2008 financial crisis. According to Risk Magazine, the foundation of Citadel's success is in large part a result of the risk management ethos. The firm's risk management philosophy is focused on three main areas: risk capital allocation, stress exposure and liquidity management. Citadel's risk management center has 36 monitors displaying more than 50,000 instruments being traded within the firm's portfolios. It is "a real-time view of Citadel's risk exposures across its investments and market making operations globally". The firm runs 500 stress tests each day to simulate the impact of potential economic and geopolitical crises or other market dislocation. Citadel aggregates investment positions on trading screens to calculate "more than 500 doomsday scenarios" to assess the potential of risk for the firm.
In 2014, Citadel rated an A grade for risk management in the annual Institutional Investor Hedge Fund Report Card. In April 2015, Ben S. Bernanke, who was the United States Federal Reserve chairman for eight years, joined Citadel as a senior adviser on global economic and financial issues. In January 2017, Joanna Welsh became the Chief Risk Officer.
Citadel has played an active role in market structure issues and has advocated for financial legislation.
In 1999, Congress repealed a provision in the Glass-Steagall Act of 1933 that strictly separated banking and trading activities by financial firms. Griffin called dismantling that law "one of the biggest fiascos of all time".
In the aftermath of the 2008 financial crisis, Griffin and Citadel called for greater transparency in derivatives trading, a stance at odds with many other hedge funds and major financial firms. The company spoke out against Wall Street for lobbying to delay the implementation of the Dodd-Frank Act.
Griffin has also called for breaking up "too big to fail" banks and separating their banking and trading activities.
Following the 2014 publication of Flash Boys by Michael Lewis, who claimed financial markets are "rigged" by high-frequency traders at the expense of smaller investors, Griffin became a high-profile defender of today's markets, pushing for the transformation from a dealer-dominated model to one that is more transparent, automated, and competitive. Griffin claimed U.S. equity markets are the "fairest, most transparent, resilient and competitive" in the world before the Senate Banking Committee.
Citadel leads a business plan competition for the National Foundation for Teaching Entrepreneurship, mentoring low income high school students.
- The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, a 2016 Supreme Court case involving naked short selling claims against Citadel Derivative Group and Merrill Lynch, and others.
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