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Citadel breaks records with $16bn profit for investors

Ken Griffin’s Citadel made a $16bn profit for investors last year, the biggest dollar gain by a hedge fund in history and a haul that establishes his firm as the most successful of all time.

Citadel, which manages $54bn in assets, made a 38.1 per cent return in its main hedge fund and strong gains in other products last year, equating to a record $16bn profit for investors after fees, according to research by LCH Investments, run by Edmond de Rothschild.

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

Last year’s huge sell-off in government bonds provided a highly attractive trade for many macro managers, helping them to their biggest gains since the onset of the global financial crisis.

Citadel, which Griffin set up in 1990, made a total gross trading profit of about $28bn last year, meaning that it charged its investors — one-fifth of whom are its own employees — roughly $12bn in expenses and performance fees.

The huge fee highlights how many investors tolerate hefty so-called pass through expenses — variable charges covering a range of items including trader pay, technology and rent — if net returns are still high.

The $16bn of gains for investors means Griffin’s Citadel replaces Ray Dalio’s Bridgewater, which for seven years had been the all-time most successful hedge fund, at the top of LCH Investments’ list of the 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 both tumbled.

Multi-manager funds such as Citadel and Millennium, which run money across a wide range of strategies, and macro funds such as Brevan Howard and Rokos that bet on falling bond yields, thrived. But many equity funds were badly damaged by the sell-off in technology stocks as interest rates were raised sharply to combat soaring inflation.

Most striking was the 56 per cent loss suffered by Chase Coleman’s Tiger Global, the most famous of the so-called “Tiger cub” funds spawned from legendary investor Julian Robertson’s Tiger Management.

Coleman’s hedge fund was one of the biggest winners from the bull market in technology stocks and two years ago entered the list of the top managers of all time in 14th place, with an annual gain of $10.4bn.

But it was one of the highest-profile casualties when markets reversed, making $18bn of losses across its funds last year and dropping out of the top 20. According to LCH, this ranks as the biggest annual loss in hedge fund history. LCH’s research does not include Tiger’s private equity business. Tiger Global declined to comment.

Meanwhile fellow Tiger cub Lone Pine lost $10.9bn last year, pushing its ranking down from sixth to 11th in the all-time list. And Sir Christopher Hohn’s TCI slipped from ninth to 14th as it lost $8.1bn, wiping out much of the $9.5bn it made for investors in 2021.

There had been “a tremendous divergence” of results, said LCH chair Rick Sopher. “The divergences mainly reflected whether the strategy sought to benefit from trading opportunities around the significant volatility, or were caught holding high growth equities whose valuations compressed sharply.” 

Overall the top 20 managers of all time in LCH’s list made $22.4bn in gains last year, while hedge funds overall lost $208bn for investors.

Israel Englander’s Millennium, which gained about 12 per cent last year, made $8bn for investors, and Steven Cohen’s Point72 made $2.4bn thanks to a 10.3 per cent return. Both are multi-manager funds that employ tens or even hundreds of teams of traders. They specialise in controlling risk by quickly cutting back losing bets, but increasing the size of winning trades.

Citadel, which suffered badly in the 2008 financial crisis but has gone on to post returns well ahead of the S&P 500 and its peers, was last year able to put on risk when many other investors were running for cover. It achieved records in four of its five business units last year, with its fixed income strategy making 32.6 per cent, ahead of many specialist macro funds.

“Ken Griffin learned much about hedging in the 2008 financial crisis and has an extremely disciplined approach to risk,” said David Williams, founder of outsourced equity trading firm Williams Trading.

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

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