Citadel breaks records with $16 billion profit

Ken Griffin’s Citadel posted a $16 billion return to investors last year, the largest ever dollar return by a hedge fund and a profit that makes his firm the most successful of all time.

Citadel, which manages $54 billion in assets, posted a 38.1 percent return last year in its flagship hedge fund and strong gains in other products, amounting to a record $16 billion return for investors after fees, according to research from LCH Investments, led by Edmond de Rothschild.

The profit, which was driven by bets across a range of asset classes, including bonds and stocks, surpasses the roughly $15.6 billion John Paulson made in 2007 from his bet against subprime.

Last year’s massive sell-off in government bonds made trading very attractive for many macro managers, making them their biggest gains since the start of the global financial crisis.

Citadel, which Griffin founded in 1990, made a total gross trading profit of about $28 billion last year, meaning it charged its investors — one-fifth of its own employees — about $12 billion in expenses and performance fees.

The huge fee shows how much investors will tolerate hefty so-called pass-on costs – variable costs for a range of items including merchant fees, technology and rent – if net returns are still high.

The $16 billion investor gain means Griffin’s Citadel replaces Ray Dalio’s Bridgewater, which was the most successful hedge fund of all time for seven years and topped LCH Investments’ list of top money managers. Citadel declined to comment.

You see a snapshot of an interactive image. This is most likely because you are offline or JavaScript is disabled in your browser.

The record profits come in a turbulent year for financial markets and the hedge funds that trade them, as both stocks and bonds plummeted.

Multi-manager funds like Citadel and Millennium, which manage money across a wide range of strategies, and macro funds like Brevan Howard and Rokos, which bet on falling bond yields, performed well. But many equity funds were badly damaged by the sell-off in tech stocks as interest rates were raised sharply to combat skyrocketing inflation.

Most notable was Tiger Global’s 56 percent loss to Chase Coleman, the most famous of the so-called “Tiger cub” funds spawned by legendary investor Julian Robertson’s Tiger Management.

Coleman’s hedge fund was one of the biggest winners of the bull market in technology stocks, entering the list of the all-time greatest managers two years ago, with annual earnings of $10.4 billion.

But it was one of its most notable casualties when markets reversed, taking $18 billion in losses in its funds last year and falling out of the top 20. This is the largest annual loss in hedge fund history, according to LCH. LCH’s research does not include Tiger’s private equity activities. Tiger Global declined to comment.

Meanwhile, fellow tiger cub Lone Pine lost $10.9 billion last year, dropping the ranking from sixth to eleventh on the all-time list. And Sir Christopher Hohn’s TCI dropped from ninth to 14th as it lost $8.1 billion, wiping out much of the $9.5 billion it brought in for investors in 2021.

There was “a huge divergence” of results, said LCH chairman Rick Sopher. “The differences mainly reflected whether the strategy was trying to capitalize on trading opportunities around the significant volatility, or caught on high-growth stocks whose valuations fell sharply.”

Overall, the top 20 managers of all time in LCH’s list made $22.4 billion in profits last year, while hedge funds lost a total of $208 billion to investors.

Israel Englander’s Millennium, which gained about 12 percent last year, earned $8 billion for investors, and Steven Cohen’s Point72 earned $2.4 billion on a 10.3 percent return. Both are multi-manager funds that employ dozens or even hundreds of teams of traders. They specialize in managing risk by quickly reducing losing bets but increasing the size of winning trades.

Citadel, which suffered badly from the 2008 financial crisis but posted returns well above the S&P 500 and its peers, was able to take risks last year when many other investors took cover. It set records in four of its five business units last year, with its fixed-income strategy gaining 32.6 percent, outperforming many specialized macro funds.

“Ken Griffin learned a lot about hedging during the 2008 financial crisis and has an extremely disciplined approach to risk,” said David Williams, founder of outsourced stock trading company Williams Trading.

Point72 did not respond to requests for comment. TCI, Millennium, Lone Pine and Bridgewater declined to comment.

laurence.fletcher@ft.com

Leave a Comment