Citadel LLC

Citadel
Private company, Limited Liability Company
Industry Financial market, Hedge fund Management
Predecessor
  • Citadel Investment Group, LLC
  • Wellington Financial Group
Founded 1990
Headquarters Citadel Center
Chicago, Illinois, USA
Key people
Products
AUM US $149 billion[1][2]
Number of employees
 1,400
Website www.citadel.com

Citadel (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 $25 billion in assets under management; and Citadel Securities, one of the leading market makers in the world, trading products including equities, equity options, and interest rate swaps for retail and institutional clients.[3]

Citadel is one of only three percent of hedge funds that have been in existence for more than 20 years. Recognized for its investment performance, the firm manages assets for many of the world's largest institutional investors including sovereign wealth funds, pensions, and university endowments.[4] The company has more than 1400 employees, with headquarters in Chicago, and offices throughout North America, Asia and Europe.[5]

Business segments

Citadel

As of January 2016, Citadel manages more than $25 billion in capital and is one of the world's largest asset managers.[1][6] Citadel ranks as the eleventh largest hedge fund manager in the world,[7] and the second largest multi-strategy hedge fund globally.[5] Citadel's group of hedge funds rank among the largest and most successful hedge funds in the world.[8] The hedge fund's assets under management has increased by 29% and more than $10 billion since 2014.[9]

Citadel manages funds across five different investment strategies including equities, commodities, fixed income, quantitative strategies, and credit. Luis Ortiz , Head of Repographics, greatly contributes to the team.[10] The firm is known for its state-of-the-art technology, fundamental research, and strong risk management culture.[11][12]

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.[2][13] The firm's Kensington and Wellington funds posted returns of about 25 percent in 2012, completing their recovery from the financial crisis.[14]

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.[13]

Citadel Securities

Citadel Securities was formed in 2002, and is a leading 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.[2] Barron's recently ranked Citadel Securities #1 in providing price improvement for investors in both S&P 500 and non-S&P shares.[13]

Citadel Securities makes markets in more than 7,000 U.S.-listed securities and in about 18,000 OTC securities worldwide.[15] Citadel Securities is the largest market maker in options in the U.S., executing about 25 percent U.S.-listed equity options volume.[16] 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.[9]

Citadel Securities also executes about 13 percent of U.S. consolidated volume in equities and 28 percent of U.S. retail equities volume.[17][18]

In 2014, Citadel Securities expanded its market-making offering to interest-rate swaps, one of the most commonly-traded derivatives.[19] 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.[20] 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.[21]

Citadel Securities retail trading platform is headed by Jamil Nazarali, who was named to the 2014 Trading Technology 40 by Institutional Investor.[22]

In July 2016, Citadel hired Microsoft COO and former Wal-Mart executive, B. Kevin Turner, to be the CEO of Citadel Securities.[23]

In January 2017, Turner left Citadel and was replaced by the vice chairman of the whole firm, Peng Zhao.[24]

Citadel Technology

Citadel Technology, established in 2009, is the wholly owned and independently operated affiliate of Citadel.[25][26] It offers investment management technology, developed internally at Citadel, to a wide range of firms and funds.[27]

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).[25]

History

Founding

Ken Griffin launched his trading career out of his dorm room at Harvard University in 1987, with $265,000 raised from friends and family.[28][29] As a sophomore, he traded convertible bonds and hooked a satellite dish to the roof of his dormitory.[29][30] After graduating with a degree in economics, Griffin joined Chicago-based hedge fund Glenwood Partners, led by hedge fund pioneer and Griffin mentor, Frank Meyer.[29] In November 1990, Griffin founded Citadel with Meyer's backing.[29][31]

Early history

According to a New York Times report, Citadel was started with $4.6 million in capital.[32] Citadel was originally named Wellington Financial Group after its flagship fund.[33] The company name was changed to Citadel in 1994.[33] Within eight years, the firm had more than $2 billion in assets.[34]

In 1998, Citadel started requiring investors to accept terms that "restrict[ed] their ability to withdraw their capital," according to Institutional Investor.[34] 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."[34]

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.[35] 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."[36]

Citadel suspended shareholder redemptions, which Griffin called one of the "most difficult decisions" in Citadel history.[37] Griffin later conceded that the firm was "overly confident" it could "weather any financial storm." He covered all investor management expenses during that period.[37]

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."[37]

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.[11] The firm's risk management philosophy is focused on three main areas: risk capital allocation, stress exposure and liquidity management.[38] Citadel's risk management center has 36 monitors displaying more than 50,000 instruments being traded within the firm's portfolios.[38] It is "a real-time view of Citadel’s risk exposures across its investments and market making operations globally."[11] The firm runs 500 stress tests each day to simulate the impact of potential economic and geopolitical crises or other market dislocation.[38] Citadel aggregates investment positions on trading screens to calculate "more than 500 doomsday scenarios" to assess the potential of risk for the firm.[9]

In 2014, Citadel rated an A grade for risk management in the annual Institutional Investor Hedge Fund Report Card.[39] 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.[40] In January 2017, Joanna Welsh became the Chief Risk Officer.

Major investments

Citadel is known for its many notable investments over the years.

In 2006, the company acquired large portions of Amaranth Advisors' energy portfolio. In 2007, Citadel purchased the entire portfolio of rival hedge fund Sowood Asset Management over the course of a weekend negotiation. Sowood had lost hundreds of millions of dollars and had to liquidate their portfolio to meet margin calls prior to the opening of the market on Monday.[41]

In November 2007, Citadel provided a $2.5 billion cash infusion to e*Trade Financial, taking a nearly 20 percent stake in the online broker that was ensnared in the home mortgage crisis.[42] In a 2011 letter to the e*Trade board, Citadel criticized the company for "destroying more than $9 billion in stockholder value" for a "phenomenal franchise."[43] The letter called on e*Trade to explore a sale of the company. In 2013, Citadel sold its remaining share in e*Trade.[44]

Market advocacy

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."[45]

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.[45][46]

Griffin has also called for breaking up "too big to fail" banks and separating their banking and trading activities.[46]

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.[47]

As a part of a series called Citadel Conversations, Stephen Berger spoke out advocating for "fair, open, and transparent markets."[48]

Offices

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.[49][50] The 37-story Citadel Center office tower opened in 2003 with Citadel as its anchor tenant.[51]

Citadel also has offices in New York, Hong Kong, San Francisco, Boston, Dallas, London, Houston, Greenwich, Denver, Shenzen, Shanghai, and Toronto.[52]

Philanthropy

Citadel is an active participant in the community by providing educational opportunities and helping children and families with acute medical needs.

The firm also partners with food banks around the United States for a "virtual food drive." In 2015, Citadel's contributions to the Greater Chicago Food Depository were the highest from a single corporate donor in that organization's history.[53]

Citadel leads a business plan competition for the National Foundation for Teaching Entrepreneurship, mentoring low income high school students. In January 2015, Citadel partnered with the National Museum of Mathematics (MoMath) to tutor, prepare and support math and science students from low income communities.[54]

Recognition

Citadel has been acknowledged through various awards and accolades.

In 2015, Citadel received a "People's Pick" award as one of the 20 Great Places to Work in Financial Services.[55] The firm also ranked among the top 10 companies to work for according to employee surveys by Great Places to Work in 2015.

In 2015, Institutional Investor/Alpha magazine gave Citadel an A grade and the #3 ranking among hedge funds worldwide.[56]

In 2013, Citadel was named the best overall hedge fund group in the Hedge Funds Reviews Americas Award.[57] Institutional Investor named Citadel Multistrategy Hedge Fund Manager of the Year in 2013 and 2014 and Institutional Hedge Fund Manager of the Year in 2015.[39]

See also

References

  1. 1 2 Bit, Kelly (7 October 2014). "Griffin's Citadel Rose in September as Hedge Funds Fell". Bloomberg. Retrieved 11 December 2014.
  2. 1 2 3 Lynne Marek (13 October 2012). "Why hedge-fund operator Citadel is becoming a stockbroker". Crain's Chicago Business. Retrieved 11 December 2014.
  3. ↑ David Snider; Chris Howard (February 16, 2010). Money Makers: Inside the New World of Finance and Business. Palgrave Macmillan. pp. 225–. ISBN 978-0-230-61401-7. Retrieved July 31, 2011.
  4. ↑ Marek, Lynne (11 October 2014). "Citadel, back from the brink". Crain's Chicago Business. Retrieved 24 February 2015.
  5. 1 2 Hutchins, william (December 8, 2006). "Citadel leads the way in financial self-sufficiency". Financial Times. Retrieved 2006-01-27
  6. ↑ Kolhatkar, Sheelah (16 April 2007). "Opening Up the Citadel". Upstart Business Journal. Retrieved 24 February 2015.
  7. ↑ Rose-Smith, Imogen (2006 2006). "Land of the Giants" (PDF). Alpha magazine. p. 3. Retrieved 2008-03-20 (dead link).
  8. ↑ Allen, Susie; Huang, Wen (15 July 2014). "Two new members elected to University of Chicago Board of Trustees". U Chicago News. Retrieved 24 February 2015.
  9. 1 2 3 Copeland, Rob (3 August 2015). "Citadel's Ken Griffin Leaves 2008 Tumble Far Behind". Wall Street Journal. Retrieved 23 October 2015.
  10. ↑ "Investment Strategies". Citadel. Retrieved 24 February 2015.
  11. 1 2 3 Devasabai, Kris (21 October 2014). "Citadel prepares for swap market-making role". Risk.net. Risk Magazine. Retrieved 24 July 2015.
  12. ↑ Michael J. De La Merced (January 10, 2013). "Citadel Posted 25% Return Last Year, Beating Industry Again". DealBook. Retrieved July 27, 2015.
  13. 1 2 3 Bill Alpert (February 28, 2015). "Exclusive: Who Makes Money on Your Stock Trades". Barron's. Retrieved July 27, 2015.
  14. ↑ "Citadel's 2012 A Bumper Crop Of Double-Digit Returns". FINalternatives. January 11, 2013.
  15. ↑ "CES Retail". Citadel. Retrieved 26 February 2015.
  16. ↑ Lynne Marek (5 December 2015). "Citadel wants to shape the rules of the game". Crain's Chicago Business.
  17. ↑ Burton, Katherine (10 April 2014). "Citadel Fund Said to Quadruple With High-Frequency Trades". Bloomberg Business. Retrieved 26 February 2015.
  18. ↑ "Citadel rebounds from 2008 losses making $5bn in profits YTD Citadel debuts underwriting with Advanced Micro debt". Opalesque.
  19. ↑ Chiara Albanese (June 6, 2014). "Citadel to Offer Trading in Interest-Rate Swaps". Wall Street Journal. Retrieved July 27, 2015.
  20. ↑ "Citadel shaking up swaps competition". Risk Magazine. March 10, 2015. Retrieved July 27, 2015.
  21. ↑ "Citadel's Ken Griffin on Amazon, Bloomberg and swap market reform". Risk Magazine. November 2014.
  22. ↑ Jeffrey Kutler (January 27, 2014). "The 2014 Trading Technology 40". Institutional Investor. Retrieved July 27, 2015.
  23. ↑ Wingfield, Nick; Stevenson, Alexandra (7 July 2016). "Kevin Turner, Microsoft Executive, to Join Citadel Securities". The New York Times.
  24. ↑ "Peng Zhao replaces Kevin Turner atop Citadel Securities. Luis Ortiz is Head of Repographics.". Retrieved 30 January 2017.
  25. 1 2 Schmerken, Ivy (25 September 2013). "REDI and Citadel Technology Tackle the "Holy Grail"". InformationWeek. Retrieved 26 February 2015.
  26. ↑ "Citadel Carves Out Technology Niche". Markets Media. 20 April 2013. Retrieved 26 February 2015.
  27. ↑ "Citadel technology preps end to end solutions suite". Waters Technology. Retrieved 26 February 2015.
  28. ↑ Strasburg, Jenny; Zuckerman, Gregory (7 November 2008). "Hedge Fund Selling Puts New Stress on Market". Wall Street Journal. Retrieved 11 March 2015.
  29. 1 2 3 4 Delevingne, Lawrence (15 May 2015). "King Ken: Recovered Citadel chief takes the hedge fund throne". CNBC. Retrieved 20 May 2015.
  30. ↑ Meyer, Graham (8 June 2011). "The File on Citadel's Ken Griffin". Chicago Magazine. Retrieved 11 March 2015.
  31. ↑ "Kenneth Griffin, The World's Richest People". Forbes.com. February 13, 2006. Retrieved August 13, 2012.
  32. ↑ Ahmed, Azam; Craig, Suzanne (11 August 2011). "Citadel Chief Gives Up Dream for Investment Bank". New York Times DealBook. Retrieved 25 February 2015.
  33. 1 2 "Overview". Citadel. Retrieved 11 March 2015.
  34. 1 2 3 Lux, Hal (1 September 2001). "Boy Wonder". Institutional Investor. Retrieved 24 July 2015.
  35. ↑ Burton, Katherine (17 May 2011). "Citadel Said to Ease Withdrawal Rules for Hedge-Fund Clients". Bloomberg. Retrieved 24 July 2015.
  36. ↑ Harris, Melissa (22 May 2013). "Citadel's Kenneth Griffin exposes 'cronyism,' causes a stir at Economic Club". Chicago Tribune. Retrieved 24 July 2015.
  37. 1 2 3 Ahmed, Azam (January 20, 2012). "Citadel Clears Its High Water Mark". The New York Times.
  38. 1 2 3 Amanda Cantrell (10 December 2015). "Are You Prepared for the Next Crash?". Institutional Investor's Alpha.
  39. 1 2 Hurst, Georgina (27 June 2014). "A Winning Night for Hedge Fund Managers and Investors". Institutional Investor. Retrieved 16 February 2015.
  40. ↑ Sorkin, Andrew Ross; Stevenson, Alexandra (16 April 2015), "Ben Bernanke Will Work With Citadel, a Hedge Fund, as an Adviser", New York Times, retrieved 16 April 2015
  41. ↑ Anderson, Jenny (31 July 2007). "Hedge Fund Forced to Sell Its Portfolio". The New York Times.
  42. ↑ Craig, Susanne; Karnitschnig, Matthew; Berman, Dennis (29 November 2007). "Why Citadel Pounced On Wounded E*Trade". Wall Street Journal. Retrieved 24 July 2015.
  43. ↑ Comstock, Courtney (20 July 2011). "Read The Angry Letter Ken Griffin's Citadel Sent To The E-Trade Board". Business Insider. Retrieved 24 July 2015.
  44. ↑ Philbin, Brett (14 March 2013). "E*Trade Loses Largest Shareholder as Citadel Sells Out". Wall Street Journal. Retrieved 24 July 2015.
  45. 1 2 "Risk 25 firms of the future: Citadel". Risk.net. August 1, 2012. Retrieved July 13, 2015.
  46. 1 2 Michael Mackenzie; Tom Braithwaite (September 10, 2013). "Derivatives trading safer and more efficient, says Citadel". Financial Times. Retrieved July 13, 2015.
  47. ↑ Paul Merrion (July 8, 2014). "Ban high-speed trading? 'Absolutely not,' says Citadel's Griffin". Crain's Chicago Business. Retrieved July 13, 2015.
  48. ↑ "Citadel Conversations". Retrieved July 14, 2017.
  49. ↑ Carr, Robert (October 27, 2006). "Citadel Center Trades in $560M Transaction". globest. Retrieved 2006-01-27.
  50. ↑ "Dearborn Center Announces 206,146-square-foot (19,151.6 m2) Lease with Citadel". Beitler RE Corp. March 9, 2001. Retrieved 2006-01-27.
  51. ↑ "Citadel Renews Top Six Floors at Namesake Tower". National Real Estate Investor. 21 November 2012.
  52. ↑ "Global Locations". Citadel. Retrieved 16 February 2015.
  53. ↑ "Success Stories". Greater Chicago Food Depository. Retrieved August 4, 2015.
  54. ↑ "Citadel and National Museum of Mathematics Partner to Offer No-Cost Visit to Museum". PRWeb. January 13, 2015. Retrieved August 4, 2015.
  55. ↑ Shia Kapos (March 6, 2015). "Not the Ken Griffin story you were expecting". Crain's Chicago Business. Retrieved July 27, 2015.
  56. ↑ Taub, Stephen. "The Hedge Fund Report Card" (PDF). Institutional Investor's Alpha. Retrieved 4 March 2016.
  57. ↑ "Winners announced for Americas Awards 2013". Risk.net. July 26, 2013. Retrieved July 27, 2015.
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