Citadel slims down as torrid markets deliver losses

Citadel has cut a number of analysts and fund managers from one of its main equity units after losses this year, underscoring how torrid markets are tripping up even the savviest hedge funds.

Kenneth Griffin’s Chicago-based hedge fund manages $25bn across its strategies, but Surveyor Capital, one of three equity “long-short” strategies, has fared badly this year, prompting the money manager to get rid of more than a dozen analysts and portfolio managers, according to people familiar with the matter.

Surveyor invests across seven industry sectors including entertainment, energy, healthcare and technology, according to the company’s website. Citadel just replaced the head of the unit on January 27, tapping Todd Barker to replace the departing Jon Venetos.

Citadel said: “Surveyor has been a very successful business over time, and we have strong leadership and a great team in place.”

The news was first reported by the Wall Street Journal.

Mr Griffin founded the hedge fund in 1990 after trading convertible bonds from his Harvard dorm room, and its success has made him a billionaire and one of the industry’s best-known figures. Its multi-strategy structure means each unit has its own team, its own profits and losses, and leads back to a central command like spokes on a wheel.

Citadel’s outlook for this area of investing was rosy as recently as last fall, with the company trumpeting its new San Francisco-based Ravelin Capital as part of an expansion of the equities platform.

Citadel was last month named “hedge fund of the year” by Risk Magazine, after returning 14 per cent in 2015. But in 2016 its main fund has lost 6.5 per cent, according to a person familiar with the matter.

“There is a common fallacy that we’re in the risk-minimisation business. We are in the risk-taking business,” Mr Griffin told the magazine earlier this year. “Both sides of the equation drive our performance. Our expected return, on one side, is about our offensive stance, balanced, on the other side, with the necessity to preserve our capital from catastrophic losses.”

This year has got off to a tumultuous start for hedge funds. Hedge Fund Research’s Global Index has fallen 4.4 per cent through February 10.

The popularity of multi-strategy models has created copycats hoping to replicate their successes. Some funds, such as Israel Englander’s Millennium Management, are closed to new investors, so the money from those seeking that strategy has spilled over into other groups.

Those often have similar parameters for risk-taking, modelled on the success of Millennium and Citadel, so that in part has shepherded more managers into the same securities — potentially leading to wider problems if one fund buckles.