Citadel Investment Group, LLC

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Citadel LLC
Citadellogo2.gif
Founded 1990
Headquarters Chicago
Key People Founder and Chief Executive Officer Kenneth C. Griffin
Employees 1,200
Products Hedge Fund Management, Administration
Website www.citadelgroup.com

Citadel LLC operates two primary businesses: Citadel, one of the world's largest alternative asset managers, and Citadel Securities, its broker-dealer arm, which trades equities, equity options, and interest rate swaps for retail and institutional clients. Citadel manages alternative investments covering all asset classes, investment strategies and global regions. It expanded from trading and shorting to nabbing fire-sale corporate assets and lending to companies in growth markets like China. Citadel has offices in Chicago, New York, Boston, San Francisco, Dallas, London, and Hong Kong. In addition to investing, Citadel also runs market-making and hedge fund administration businesses and also farms out some capital to independent managers.

Citadel Securities is one of the most active participants in U.S. markets, trading one in five of all equity shares that change hands in the U.S. and more than a third of U.S. retail equity volume. [1]

Citadel's flagship hedge funds, Wellington LLC and Kensington Global Strategies, had a difficult year during the financial crisis of 2008, when the firm halted investor withdrawals. However, the funds' performance rebounded in 2009 and the firm began to allow customers to withdraw their money again. Citadel's Kensington fund ended 2009 up more than 61 percent[2] and the Kensington and Wellington funds saw 10 percent returns in 2010.[3] As of August 2011, the funds' returns for the year were 15 percent.[4]

Citadel is a holder of common stock and debt instruments of E*TRADE FINANCIAL. Citadel founder and CEO Kenneth C. Griffin was appointed to E*TRADE’s board of directors in June 2009, a right granted under the 2007 Citadel investment agreement.[5] In September 2009, the firm sold a portion of its original investment in E*Trade to reduce its exposure to a single investment. It also reduced its "Level 3" assets (assets that are difficult to accurately price and to trade).[6]

History

Citadel launched as a hedge fund manager in 1990 and by 2008 it managed more than $11 billion in assets as a global alternative-investment manager.[7]

In April 2008, Citadel hired former JPMorgan Chase & Co. investment banker Derek Kaufman to run its U.S. fixed-income business, the second month in a row the hedge fund had raided the bulge-bracket bank.[8] Citadel also nabbed Patrick Edsparr from JPMorgan Chase that year to run the hedge fund's European division.

On July 15, 2008, it was revealed that the U.S. Securities and Exchange Commission (SEC) had sent subpoenas to more than 50 hedge-fund advisers as it investigated whether individuals spread false rumors to manipulate shares in two Wall Street firms. The subpoenas were seeking trading and communications data related to short selling and options trading in Bear Stearns Cos. or Lehman Brothers Holdings Inc. Rumors had been blamed for the collapse of investment bank Bear Stearns and for a slide in Lehman shares. Some of the hedge-fund advisers received subpoenas related to both probes, while others were contacted with respect to only one.[9]

In October 2008, Citadel took the unusual step of issuing a statement to deflect rumors that it might be in trouble. Citadel said the talk was "categorically false". Hours later, Griffin held an emergency conference call and said Citadel was sound. The firm had ample cash and financing facilities on hand, and its investors had withdrawn only a small amount of their money, he said.[10] On Oct. 31, 2008, Reuters reported that Citadel was shutting down its fund of funds portfolio called Fusion, a fund it had started 18 months previously with mostly its own capital.[11]

CME Group and Citadel in October 2008 announced they had executed a non-binding term sheet to launch a joint venture company within 30 days. It would be the first electronic trading platform fully integrated with a central counterparty clearing facility for credit default swaps (CDS). CME Clearing would be the central counterparty for this solution.[12]

Citadel said it would pull its board member from the bank-backed ELX Electronic Liquidity Exchange in October 2008. Citadel said it would retain an equity stake and would use the still-to-be launched ELX platform, which aimed to challenge the CME's dominance in Treasury futures. However, the firm planned to focus on the CDS trading and clearing platform being developed with CME.

Northern Trust Corp. acquired Omnium LLC, Citadel's fund administration unit, in 2011.[13]

Citadel hired Jamil Nazarali and Matt Cushman, former executives at Knight Capital Group Inc., in April 2011 to lead a new effort in quantitative trading.[14]

In August 2011, Ken Griffin was reported as trying to sell Citadel's investment bank that once had hoped to rival Goldman Sachs. The investment bank took three years to build and involved an equity research component that was also shutting down.[15][16] Wells Fargo & Co. hired 25 of Citadel's investment bankers, and also assumed the deals those bankers were working on.[17]

In September 2015 Citadel Securities launched a European fixed-income market-making business, continuing its challenge to bank dominance of trading in government debt and derivatives. Citadel intended to use this as a first step to build a broader European trading business. It will initially offer to trade swaps denominated in US dollars to European customers during local trading hours.[18]

In 2016, Citadel agreed to acquire the equity-trading operations of Citigroup’s Automated Trading Desk division, one of the pioneers of high-frequency trading, in 2016. Citigroup bought ATD for about $680 million in 2007.[19]

In July of 2016 Citadel hired Kevin Turner, the chief operating officer at Microsoft, to become CEO of its securities unit.[20] Turner departed less than a year later, in January 2017, to be replaced by Peng Zhao, who has worked for Citadel for about a decade.

In January 2017, Citadel Securities agreed to pay $22.6 million to U.S. market regulators to settle charges that it misled customers over the prices they were getting for some of their deals. The SEC said that two of the algorithms Citadel used to execute orders on behalf of retail investors had not tried to obtain the best price in the marketplace.

Key People

Citadel founder and CEO Ken Griffin has guarded his privacy carefully and mostly avoided media contact. A profile of him appeared in the May 2007 issue of Portfolio Magazine,[21] and in a prominent May 2008 article, he lambasted bankers for their inexperience and poor judgment over the 2008 credit crisis.[22]

References

  1. Citadel Securities recruits second former equities regulator. The Financial Times.
  2. Hedge Fund 2009 Performance Numbers. Marketfolly.
  3. 2010 Hedge Fund Returns: Performance Numbers From Top Managers. Marketfolly.
  4. Hedge funds see red this year after brutal August. Reuters.
  5. Kenneth Griffin joins E-Trade Financial board. Hedgeweek.
  6. Citadel Lets Investors Pull Funds. The Wall Street Journal.
  7. About Citadel. CitadelGroup.com.
  8. Hedge Fund Citadel Hires Another JPMorgan Banker. Reuters.
  9. SEC subpoenas over 50 hedge-fund advisers: report. Reuters.
  10. Citadel Chief Denies Rumors of Trouble. NYTimes.com.
  11. Citadel shutting down its fund of funds portfolio. Reuters.
  12. CME Group and Citadel to Launch the First Integrated Credit Default Swaps Trading Platform and Central Counterparty Facility, Linked to CME Clearing (Press Release). CME Group.
  13. Northern Trust Agrees to Acquire Omnium Unit From Ken Griffin’s Citadel. Bloomberg.
  14. Citadel to Start Quant Unit With Knight’s Nazarali, Cushman. Crain's Chicago.
  15. Citadel Chief Gives Up Dream for Investment Bank. NYTimes.com.
  16. Citadel Said in Talks to Sell Investment Bank, Shut Research. Bloomberg BusinessWeek.
  17. Wells Fargo Scores Citadel Investment-Bank Talent, Deals. Wall Street Journal.
  18. Citadel pushes into European swaps market. The Financial Times.
  19. Citadel Buys Assets from Citigroups's Speed-Trading Pioneer ATD. Bloomberg.
  20. Citadel names Microsoft COO to head securities unit. Crain's Chicago Business.
  21. Opening Up the Citadel. Portfolio.
  22. Kenneth Griffin, Founder of Citadel Investment, Bashes His Peers. International Herald Tribune.