| Kenneth Griffin, Citadel (Bloomberg) |
Most of Citadel’s hedge funds are back in the black after suffering steep early-year losses.
Many of the losses came from the firm’s various equity portfolios, say people familiar with the firm. Citadel has since put a new person in charge of one of its largest equity businesses and has enjoyed improved performance since then.
At one point during the first quarter, the Chicago-based hedge fund firm, founded by Kenneth Griffin, had posted losses approaching 9 percent in its flagship Kensington and Wellington multistrategy hedge funds. However, the funds have been rebounding since then, surging 2.4 percent in August. As a result, they have returned 0.6 percent for the first eight months of the year.
Citadel Tactical Trading, which specializes in equities and some statistical arbitrage, rose 2.3 percent last month and is up 2 percent for the year. During its difficult first quarter, the fund was down as much as 9.5 percent at one point. Citadel Global Fixed Income Fund rose 1.15 percent last month and is up 4.13 percent for the year. On the other hand, Citadel Global Equities Fund climbed 1.6 percent last month but remains in negative territory, down 2.2 percent for the year.
Equities are the only one of Citadel’s five core strategies that are still losing money this year. The asset class accounts for roughly 50 percent of the risk allocation of the firm’s multistrategy funds. Fixed income accounts for about 20 percent, while commodities, credit and quantitative trading round out the remaining 30 percent of the risk.
All four of Citadel’s equities businesses run a long-short, market-neutral strategy, with an emphasis on stock selection. Citadel looks to pick the right stocks more than 50 percent of the time, with a strong focus on sizing of investment ideas appropriately. (The idea is to win more on the winners than it loses on the losers.) Quantitative research contributes to this effort. The firm’s hit rate is said to be much better in recent months than it was earlier in the year.
Most of the losses in the first quarter were due to poor stock picking in both Citadel’s Global Equities and Surveyor Capital equity businesses, according to people familiar with the firm. Citadel was especially hurt by energy stocks in March. However, over the past few months, Citadel has benefited from strong stock picking in both Global Equities and Surveyor, these people say. August was the best month of the year for Surveyor and the second best for Global Equities.
One big reason for the turnaround: personnel changes. Early this year Citadel put Todd Barker in charge of Surveyor after it suffered a period of underperformance. He was a former co-head of Citadel’s global equities business. Since then the firm has hired 30 people for its Surveyor unit.
Citadel’s other four businesses are profitable. Its fixed-income and macro business (which predominantly trades government bonds and currencies), commodities business and quantitative trading business have been profitable every month, while its credit business, which predominantly trades convertible securities, is profitable for the year. Citadel’s commodities business recently built out its trading effort in natural gas.
Meanwhile, the firm continues to build out its new Aptigon stock-trading business, recently hiring 18 portfolio managers from Visium Capital Management. It is now looking to augment them with additional analysts and associates.
Late last year Citadel launched Ravelin Capital in San Francisco, another stock-trading business. It also recently hired Steven Lieblich as the firm’s new head of technology; he joined the company on Tuesday from Morgan Stanley. Earlier this year Citadel promoted Peng Zhao to chief scientist, responsible for some of its research efforts across the hedge fund business.
