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Citadel Knows How to Manage Risk

Citadel LLC is a global financial powerhouse headquartered at the Citadel Center in Chicago, Illinois. It consists of two primary businesses Citadel and Citadel Securities. Citadel is one of the worlds largest alternative asset managers with assets under management totaling more than $26 billion. While Citadel Securities is a leading market maker for both retail and institutional clients around the world offering interest rate swaps, equities and equity options.

Beginnings

Founded in 1990 as Wellington Financial Group after its flagship fund and in 1994 changed its name to Citadel Investment Group. Reportedly starting with $4.6 million in capital in 1990 by 1998 Citadel had $2 billion worth of assets. In that same year Citadel became one the few few buyers of bonds when hedge fund managers became desperate to unload their bonds do to the collapse of Long-Term Capital Management Fund.

Major Investments

In 2006 Citadel acquired a large amount of Amaranth Advisors energy portfolio. A year later in 2007 Citadel purchased the complete portfolio of rival hedge fund Sowood Asset Management in one weekend. Sowood, having lost hundreds of millions of dollars had to liquidate their portfolio to satisfy margin calls before the market opened on Monday.

Risk Management after 2008

Since the financial crisis of 2008 liquidity has become a major emphasis in Citadel’s risk management strategy. Maintaining liquidity along with exposure analysis and strenuous stress testing through their risk center allows analysts to monitor Citadel’s market making and investment operations globally for risk exposure. In 2014 this emphasis on risk management got Citadel an A grade for risk management on the Institutional Investor Hedge Fund Report Card. Ben Bernanke, the former Chairman of the United States Federal Reserve join Citadel in April of this year as a senior adviser on global economic and financial issues.

Getting to Know the CEO

Kenneth Griffin is both the founder and Chief Executive Officer of Citadel LLC. Griffin began his investment career while still in college at Harvard University where he earned an economics degree in 1989. After college Griffin was given $1 million to invest by Glenwood Capital LLC founder Frank Meyer. He reportedly made Meyer a 70 percent return on investment which far exceeded Meyer’s expectations. Griffin founded Citadel in 1990 with $4.6 million in capital. By 1998 Citadel had expanded to more than 100 employees and had more that $1 billion in capital. Today Citadel has an estimated $26 billion under management and Mr. Griffin is estimated net worth of at least $6.6 Billion.

As the CEO of Citadel Mr. Griffin has let his views on the market and the need for industry regulations to catch up with changes in the market. He testified at numerous U.S. House and Senate committees on the need to update financial regulations. In 2008 he was quoted saying “As an industry, we have a responsibility to manage risk in a way that is prudent…The capital markets are controlled by a bunch of right-out-of business school young guys who haven’t really seen that much. You have a real lack of wisdom” in direct criticism of the risk management practices of Wall Street.

With a man like Kenneth Griffin at the helm and the risk management practices his team have put in place at Citadel investing might not be such risky business.

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