Citadel breaks records with $16 billion in revenue
Ken Griffin’s Castle generated $16 billion in profit for investors last year, the largest dollar gain by a hedge fund in history and a return that makes his company the most successful of all.
Citadel, which manages $54 billion in assets, posted a 38.1 percent return in its flagship hedge fund and solid gains in other products last year, equaling a record $16 billion profit for investors after fees, according to research by LCH Investments, run by Edmund D. Rothschild.
The dividend, which was driven by bets across a range of asset classes including bonds and stocks, tops the nearly $15.6 billion John Paulson made in 2007 with his subprime mortgage bet.
The sell-off in government bonds in the past year has provided a very attractive trade for many macro managers, which has helped them their biggest gain Since the beginning of the global financial crisis.
Citadel, set up by Griffin in 1990, generated nearly $28 billion in gross trading profits last year, which means it charged its investors — and one-fifth of its employees — nearly $12 billion in expenses and performance fees.
The huge fees highlight how many investors can incur so-called high traffic expenses — variable fees that cover a range of items including trader salaries, technology and rent — if net returns remain high.
The $16 billion gain means for investors that Castle Griffin will replace Ray Dalio’s Bridgewater, which for seven years was the most successful hedge fund of all time, at the top of LCH Investments’ list of top money managers. Citadel declined to comment.
The record profits come in a turbulent year for financial markets, and the hedge funds that trade them, as stocks and bonds plunged.
Multi-manager funds like Citadel and Millennium, which manage money across a wide range of strategies, and macro funds like Brevan Howard and Rokos that bet on lower bond yields have thrived. But many stock funds have been hit hard by the sell-off in technology stocks as interest rates have been raised sharply to combat spiraling inflation.
Most striking was the 56 percent loss incurred by Chase Coleman Tiger Global The most famous of the so-called “tiger cub” funds was born out of legendary tiger management by investor Julian Robertson.
Coleman’s hedge fund was one of the biggest bull market winners in technology stocks and two years ago it entered the all-time top managers list at No. 14, with annual profits of $10.4 billion.
But she was one of them prominent victims That’s when the markets reversed, notching $18 billion in losses across its funds last year and dropping out of the top 20. According to LCH, this ranks as the largest annual loss in hedge fund history. LCH Research does not include Tiger’s private equity business. Tiger Global declined to comment.
Meanwhile, fellow tiger cub Lone Pine lost $10.9 billion last year, pushing her ranking down from sixth to 11th on the all-time list. Sir Christopher Hoon’s Investment Composition Index fell from ninth to 14th with a loss of $8.1 billion, wiping out much of the $9.5 billion it made for investors in 2021.
LCH President Rick Sofer said there was a “huge variance” in the results. “The differences mainly reflect whether the strategy sought to take advantage of trading opportunities around large swings, or was caught owning high-growth stocks whose valuations have fallen sharply.”
Overall, the top 20 managers of all time on LCH’s list gained $22.4 billion last year, while hedge funds overall lost $208 billion to investors.
Israel’s Millennium England, which gained about 12 percent last year, brought in $8 billion to investors, and Stephen Cohen’s Point 72 brought in $2.4 billion thanks to a 10.3 percent return. Both are multi-manager funds that employ dozens or even hundreds of teams of traders. They specialize in controlling risk by quickly cutting back losing bets, while increasing the amount of winning trades.
Citadel, which suffered badly in the 2008 financial crisis but continued to generate returns well ahead of the S&P 500 and its peers, was last year able to take a risk when many other investors were looking for cover. It posted record numbers in four of its five business units last year, with its fixed-income strategy yielding 32.6 percent, ahead of several major specialty funds.
“Ken Griffin learned a lot about hedging in the 2008 financial crisis and has a very disciplined approach to risk,” said David Williams, founder of stock trading firm Williams Trading.
Point72 did not respond to requests for comment. TCI, Millennium, Lone Pine and Bridgewater declined to comment.
laurence.fletcher@ft.com