Citadel Offers Rare Glimpse into Multistrategy Funds’ Performance
CITADEL offered a rare glimpse under the hood of its multistrategy funds during a lucrative period for the most profitable hedge fund firm ever.
The firm’s US$1 billion bond offering this week required Ken Griffin’s secretive hedge fund to produce a prospectus for investors, a copy of which was obtained by Bloomberg. While it does not give a full picture of Citadel, it offers financial results for its largest funds for almost four years, from the start of 2021 through September of last year.
Fund Performance
The three funds, which started 2021 with US$23.6 billion, produced US$56.8 billion of gains in the period. Investors netted US$30 billion, even after paying US$7.5 billion in management and performance fees and US$17 billion in so-called pass-through expenses – roughly 90 per cent of which was employee compensation.
Fund Composition
The Wellington, Kensington and Kensington II funds made up about 80 per cent of the US$65 billion that Citadel managed at the beginning of this year. The funds are run similarly, with Wellington, the oldest, gaining 19.5 per cent from its November 1990 inception to December. Since the beginning of 2018, Citadel has returned US$18 billion in voluntary distributions.
Institutional Investors
At the start of this year, about 61 per cent of the multistrategy funds’ assets came from institutional investors such as sovereign wealth funds, pensions and endowments. Citadel principals and employees – who pay the same fees and expenses as other investors – made up 18 per cent, while family offices and funds of funds comprised 12 per cent and 9 per cent, respectively.
Net Income
Net income for Citadel’s funds declined in the nine months ended Sep 30 compared with a year earlier. Still, Citadel said all of its strategies delivered positive net trading revenues – driven by equities, natural gas and power in its commodities unit, and fundamental credit and convertibles.
Succession Planning
The prospectus also touched on short-term succession planning: If Griffin, 56, dies or leaves unexpectedly, a management committee will assume day-to-day control under the oversight of an independent board made up of people appointed by the billionaire who would take on his voting rights.
Citadel’s Size and Structure
Citadel has more than 2,800 full-time employees, including more than 1,000 investment professionals.
Potential Conflicts of Interest
The document also discloses a range of potential conflicts of interest, including those between the hedge funds and Citadel Securities, the market-making firm that’s part of Griffin’s empire. Citadel principals and related parties own a “substantial majority” of Citadel Securities, the prospectus stated, adding that the ownership could incentivise them to favour that business over the hedge funds.
Conclusion
Citadel’s recent prospectus has provided a rare glimpse into the performance of its multistrategy funds, revealing significant gains and a lucrative period for the hedge fund firm. The document also touches on succession planning, conflicts of interest, and the size and structure of the company.
FAQs
Q: What is Citadel’s total assets under management?
A: Citadel managed US$65 billion at the beginning of this year.
Q: What is the composition of Citadel’s funds?
A: The Wellington, Kensington and Kensington II funds made up about 80 per cent of Citadel’s managed assets, with the remaining 20 per cent comprising other funds.
Q: How does Citadel’s performance compare to other hedge funds?
A: Citadel’s performance has been particularly strong, with gains of US$56.8 billion in the period from 2021 to September 2022.
Q: What is the significance of the prospectus for Citadel?
A: The prospectus is a rare look into Citadel’s financial performance and operations, providing insight into the company’s structure, conflicts of interest, and succession planning.
