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Citadel breaks records with $16 billion profit

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Ken Griffin’s Citadel earned investors $16 billion last year, the biggest dollar gain for a hedge fund in history and an achievement that establishes his company as the most successful of all times.

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

The profit, which was boosted by bets on a range of asset classes including bonds and equities, tops the roughly $15.6 billion made by John Paulson in 2007 through his bet against subprime.

Last year’s huge government bond sale provided highly attractive trading for many macro managers, helping them to make their biggest gains since the start of the global financial crisis.

Citadel, which Griffin founded in 1990, made a total gross profit of about $28 billion last year, which means it charged its investors – a fifth of whom are its own employees – about $12 billion in expenses and performance fees.

The huge fee highlights how many investors can tolerate the hefty pass-through expenses — variable charges that cover a range of items, including paying merchants, technology and rent — if net returns are still high.

Earnings of $16 billion for investors mean Griffin’s Citadel replaces Ray Dalio’s Bridgewater, which for seven years was the most successful hedge fund of all time, at the top of LCH Investments’ list of top managers of resources. The Citadel declined to comment.

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

Multi-manager funds such as Citadel and Millennium, which manage money across a wide range of strategies, and macro funds such as Brevan Howard and Rokos, which bet on falling bond yields, thrived. But many equity funds have been badly hurt by the sell-off in technology stocks as interest rates have risen sharply to combat rising inflation.

Most impressive was the 56% loss suffered by Chase Coleman’s Tiger Global, the most famous of the so-called “Tiger cub” funds generated by legendary investor Julian Robertson’s Tiger Management.

Coleman’s hedge fund was one of the biggest winners in the tech stock market and two years ago entered the list of all-time top managers at No. 14, with an annual gain of $10.4 billion.

But it was one of the high-profile lows when the markets reversed, taking its funds $18 billion in losses last year and dropping out of the top 20. According to LCH, this is 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, Lone Pine, also a tiger cub, lost $10.9 billion last year, pushing its ranking from sixth to 11th on the all-time list. And Sir Christopher Hohn’s TCI slipped from ninth to 14th, losing $8.1 billion, wiping out much of the $9.5 billion it generated for investors in 2021.

There was “a tremendous divergence” in results, said LCH President Rick Sopher. “The divergences primarily reflected whether the strategy sought to take advantage of trading opportunities around significant volatility or was caught holding onto high-growth stocks whose valuations have compressed sharply.”

Overall, the top 20 all-time managers on LCH’s list had gains of $22.4 billion last year, while hedge funds lost $208 billion to investors.

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

Citadel, which suffered badly from the 2008 financial crisis but managed to post returns well above the S&P 500 and its peers, was able to take a risk last year 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 gaining 32.6%, ahead of many specialist macro funds.

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

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