Citadel was rather firm in issuing unflagging and unqualified denials relating to any persistent rumors that had been swirling around about the firm. These started to become more and more acute in the last two weeks. It was said they were being visited by the Fed. No, the Fed was interviewing Citadel counterparties to gauge their exposure. Ok, so Citadel had met with the Fed, sorta. But it was totally routine. That they were down 20%. No, it's more like 30%. Ok, 40%. "40%? You're a damn liar. It was 30%, seriously." Their "reassure debt holders" call was so popular with non-debt-holders that the call was apparently delayed while the firm scrambled to reserve more lines. This is the modern equivalent of rubbernecking, of course.
So Citadel is fine. But that 10% "Mommy, I had an accident in the night time" disaster that was the last two days of the market? Totally Citadel and friends, or so says the Wall Street Journal:
The recent rush of withdrawal notices to hedge funds comes as investors, including endowments, pension funds and wealthy individuals, see other investments shrink; in some cases these investors need cash to meet their own obligations. It also marks a sharp reversal of sentiment among these big institutional investors, which jumped into hedge funds and similar investments in recent years. The University of Virginia, with an endowment of $4 billion in mid-October, recently said it plans to sell $400 million of its $1.8 billion in hedge funds in the next couple of years to fulfill commitments to other investments.The result is a downward spiral where hedge funds sell off thinly traded securities such as convertible bonds and corporate loans, driving down their prices, and leading to bigger losses and more demands for cash. Some $4.28 billion worth of corporate loans have been put up for sale in the past month, according to Standard & Poor's. When hedge funds can't meet the demands for cash, lenders seize their assets and try to sell them, further driving down prices and putting more funds in trouble.
Ok you ruffians! Who's long equities?
Hedge Fund Selling Puts New Stress on Market [The Wall Street Journal]
Posted by Anal_yst , Nov 07, 2008 9:11AM
mmmm mob mentality, delish
Posted by guest , Nov 07, 2008 9:15AM
Chopper, sic balls.
Posted by guest , Nov 07, 2008 9:15AM
Now we just wait for the implosion...
Posted by guest , Nov 07, 2008 9:17AM
YES WE KEN!!!
Posted by guest , Nov 07, 2008 9:19AM
I almost enjoy it more when they protest about how great everything is, and then you find out they're down 40%, investors are running for the hills, etc.
I did speak to someone yesterday who works at a fund-of-funds and does business with AQR. When I showed him the AQR story (firing people and losing assets), his direct quote was "I wouldn't be surprised if they lost more than 80% of their assets by year end".
So it ain't just Citadel. Now the hedge funds - even the solvent ones only down 8% like Plainfield - are restricting withdrawals. So instead of all the water rushing out at once they put up a tiny dam.
Guys - it's not a matter of IF you go out of business or are down to managing $500 mil with a secretary and a formerly unemployed JT Marlin trader who just got his 7.
It is just a matter of WHEN.
Posted by guest , Nov 07, 2008 9:21AM
I resent that.
-JT Marlin
Posted by guest , Nov 07, 2008 9:27AM
I've had the most absurd nightmare. I was poor and no one liked me.
Posted by guest , Nov 07, 2008 9:28AM
@7: Looking good, Billy Ray
Posted by guest , Nov 07, 2008 9:32AM
@8: Feeling good, Louis!
Posted by diablo , Nov 07, 2008 9:33AM
I liked the modern rubbernecking metaphor.
Posted by guest , Nov 07, 2008 9:41AM
#5, obviously a knob who doesnt know what they are talking about. The convert market is going to rally going into 09, these guys are just trying to bide their time till earnings stabilize and the market shows any signs of coming back to a somewhat normal level. Think KG is going out with his tail between his legs? Think again
Go get my coffee, cream two sugars. Then book my trades
Posted by guest , Nov 07, 2008 9:41AM
I hope management didn't have any money in those funds.
Posted by guest , Nov 07, 2008 9:48AM
No, and I hope investors had neither..
Posted by guest , Nov 07, 2008 9:51AM
@11. 5 here. no, not a "knob".
KG won't necessarily go out with his tail between his legs in the next 6 months, but he will say all is well and nothing is wrong, nothing to see here, these are not the droids you are looking for, until his AUM re way down and it's his money and the friends-and-family plan.
Half the battle is the marketing "image" so they have to say this stuff. But the era of the hedge fund manager as BSD is over for a long, long time. Emperor had no clothes after all.
Posted by cy , Nov 07, 2008 9:54AM
"era of the hedge fund manager as BSD is over for a long, long time."
No, it's not.
Sincerely,
John Paulson
Posted by lig , Nov 07, 2008 9:56AM
"Oh, I'm sure we're completely safe." - Charles Grodin's character while being shot at from a helicopter in Midnight Run
Posted by guest , Nov 07, 2008 9:57AM
These Ken Griffin worshippers are clueless. None of these funds are designed to withstand a move of this magnitude. it may happen once every 20 years, but it destroys everything you did for the previous 20. I bet citadel is worried that it will exist in the next two years.
Posted by guest , Nov 07, 2008 10:02AM
@15: 1 or 2 exceptions do not disprove the general tenet - most of the HF guys did not deserve or rightfully earn 2 and 20. And in a few years, when the real estate market comes back, Paulson may not be able to scramble and come up with a new investment thesis.
Posted by guest , Nov 07, 2008 10:05AM
I agree with 11. Time and stabilization and these guys will get back up/brush off shoulders/make you feel worthless once again.
Posted by guest , Nov 07, 2008 10:06AM
um, for the 18 full vintages since 1990, HFs have only had one (or two, perhaps) down years. "the era of the hedge fund manager as BSD is over for a long, long time. Emperor had no clothes after all" is such, such a b-team thing to say... even a Roubini intern wouldn't say that.
then again, b-school grads that are going into public equity (ghast! "mutual funds") are starting at $300K. you still have options if it's stability you crave. Man, I love America.
Posted by guest , Nov 07, 2008 10:07AM
yeah 14 seriously dont know anything. Markets blow up every 8 years or so, when the correction comes this will fade into oblivion just like the tech bubble did. Hedge managers will be around for a long time, the good ones anywayu
What back office do you work in??
Posted by guest , Nov 07, 2008 10:07AM
OK, so Kenny and the rest of them go tits up because of their herd mentality trades and they are now curled up in fetal position under their desks with their underpants full of fecal matter. That we know.
What I think everyone is forgetting is that whatever money is left, has to be invested again. Obviously not by the same bunch of wise asses but someone else. So I am being a bit optimistic in the sense that opportunities will come from that.
Posted by guest , Nov 07, 2008 10:08AM
Another hit for the best and the brightest.
Posted by guest , Nov 07, 2008 10:11AM
"stabilization" & "normal levels"
keep chatting nonsense terms.
better yet, keep trading.
GS killing it!
-retail
Posted by guest , Nov 07, 2008 10:17AM
"But that 10% "Mommy, I had an accident in the night time" disaster..."
That is just good comedy. Bravo.
Posted by guest , Nov 07, 2008 10:21AM
The Carney Bros had a nice article(x2) about the Emanuel ~ Wall Street link. WIll Citadel benefit from the Chitown connect?
Posted by guest , Nov 07, 2008 10:26AM
I think Citadel's about to go into a death spiral. The increase in collateral requirements has to be related in some way to the downgrade of its bonds on Friday. The increase in collateral requirements increases the risk of default, leading to more margin calls, etc. etc. Thoughts?
Posted by guest , Nov 07, 2008 10:29AM
AQR is also cutting benefits on car service, meals. Working at that place was like being in a tomb. Morale is dead. Everyone just trying to keep their heads down so they won't get cut off.
Posted by guest , Nov 07, 2008 10:33AM
@27, they def are being killed on collateral in the PB world, all converts are. It will calm down however. I am putting y money on KG to pull out. Also, I agree with 26 that the chitown trio wont let citadel go away(obama, Emanuel and KG)
@24, GS killing it? If you mean killing themselves, then you are right. Id be more worried about them than anyone
Posted by guest , Nov 07, 2008 10:33AM
@21 Of course - this is exactly a repeat of LTCM and the tech bubble and every downturn before it. I mean, banks are going to be totally cool with lending 5:1 to a bunch of quants with nothing to lose but 1 right? It's not like the fundamental model of hedge funds or pure-play investment banks is broken or anything!
Posted by guest , Nov 07, 2008 10:37AM
@30: exactly. Signed, the Supposed B-Team Nouriel Roubini Intern
Posted by guest , Nov 07, 2008 10:42AM
yes 29, killing themselves.
suicide by tarp.
-retail
Posted by guest , Nov 07, 2008 10:47AM
@30, dont you have a trade to book and a lunch order to put together? Maybe an excel spreadsheet or pitchbook to prepare? Let the men talk here, you obviously know nothing about market history.
Posted by guest , Nov 07, 2008 10:50AM
@29 agreed...people freaking out about these hfs levered 3 to 1...what about IB levered 10 or 15 to 1?? these banks have all sorts of illiquid real estate and corp loan crap
Posted by MarshallStack , Nov 07, 2008 10:52AM
@30 - I think you are right.
This story understates the death spiral. No credit space, no way to sell a decent size position and counter parties want more collateral. Good luck with that.
Posted by guest , Nov 07, 2008 10:53AM
@34: lots of HFs have corporate loans and CDOs and they're levered more than just 3-1.
Posted by guest , Nov 07, 2008 10:58AM
@33: whatever you're smoking, I'd like some.
Posted by guest , Nov 07, 2008 11:02AM
@37, clear as a bell. Im not some wharton toolbox who can write a book report like its nobodys business but cant do jack in the real world. Im surrounded by em. Those guys and of course HBS people, they are the worst.
Posted by guest , Nov 07, 2008 11:21AM
@33 - 30 here. While I wait for F9 to finish refreshing, would you mind looking through your muni inventory for a 06/13 Caifornia GO? I have a childhood friend (read: retail) who has heard they offer tax benefits and I figured I'd direct him to you boys at Schwab.
Posted by guest , Nov 07, 2008 11:30AM
@33 - 30 here again, thanks for clarifying your situation in post 38. May I suggest you go back to yahoo where your knowledge of the market will be more appreciated?
FYI - if those Wharton toolboxes you work with told you they wrote book reports, you're probably being misled by a bunch of DeVry grads. If you do happen to be one to hit the bars, I'd suggest you learn to recognize adam's apples and 5 o'clock shadows too - your BS filter is set far too high.
Posted by guest , Nov 07, 2008 11:42AM
OH MY GOD THEY KILLED KENNY!!!
Posted by guest , Nov 07, 2008 11:54AM
Citadel is in awesome shape. serves them right for feeding off the distressed assets of amaranth etc.
now they are going into the dumps and guess who'll bail them out / take over their entire portfolio -- JPMORGAN
Serve you citadel pussies RIGHT for poaching our crew.
Posted by guest , Nov 07, 2008 12:11PM
@42 Hahaha. Don't forget Sowood.
Posted by guest , Nov 07, 2008 12:26PM
#30, what do you in the markets that you would give 33 such a hard time Enlighten us. Im not saying hes right, but you sound like a complete douche. Sound like he struck a nerve
Posted by guest , Nov 07, 2008 12:33PM
Citadel is in awesome shape. serves them right for feeding off the distressed assets of amaranth etc.
now they are going into the dumps and guess who'll bail them out / take over their entire portfolio -- JPMORGAN
Serve you citadel pussies RIGHT for poaching our crew.
Posted by guest , Nov 07, 2008 12:34PM
Citadel is in awesome shape. serves them right for feeding off the distressed assets of amaranth etc.
now they are going into the dumps and guess who'll bail them out / take over their entire portfolio -- JPMORGAN
Serve you citadel pussies RIGHT for poaching our crew.
Posted by guest , Nov 07, 2008 12:41PM
@44 - I book trades, fetch lunch orders and update Excel spreadsheets and pitchbooks. And, when I have the time, I structure a trade or two.
He didn't strike a nerve at all. But, to look down upon back office and those that do the grunt work (ref. post 33 and 38) is what is douchetastic is it not?
The longer we tolerate these idiots, the sooner DB will turn into the shitshow that is Yahoo's message boards. Your cooperation in running them off is much appreciated
Posted by guest , Nov 07, 2008 12:49PM
Ken Griffin bleeds Crimson. He has inspired me to start my own hedge-fund next year in my dorm room in the sacred halls of Harvard.
you see i just started at Harvard a couple months ago as a starry-eyed freshman. I came here because Ken Griffin came here to college and Steve Schwarzman came here to b-school. I want to make billions like them. And I will
I have faith in Ken Griffin. He is, after all, a Harvard alumnus. Like I will be
-Harvard Freshman Dude
a.k.a. Billionaire Baller in the Making
Posted by guest , Nov 07, 2008 1:38PM
I worked for Ken Griffin. He's not lucky, he's smarter than all of you. And the glee coming from the has-beens and never-was 'ballers' on this board makes me glad I safely moved into traditional middle market PE (and yep, we're way up, thanks). Enjoy your burning glass houses.
Posted by guest , Nov 07, 2008 2:37PM
I worked for Ken Griffen too. He's an asshole, and everyone at Citadel knows it. The man has absolutely zero class and zero respect for anyone on the wrong side of the trade. Now that it's him on the losing end, I'm not surprised to see people laugh at him (after all, there are tons of smart people who lose money). You reap what you sow.
Posted by guest , Nov 07, 2008 2:50PM
@48 - Good motivation, though it's unfortunate that you were born 5-10 years too late (it happens).
Posted by guest , Nov 07, 2008 3:03PM
@48, you are a tool. I agree with 51, you are too late, its over for your generation as far as phat bonuses and the like go. No more rainmaking, taking huge leverage and risk for outsized returns. Yu may not even get a good job out of college, how are yo at washing lettuce.
Posted by guest , Nov 07, 2008 3:32PM
@52 why dont yo (yu?) stop missing your o's and u's and spell you correctly.
Posted by guest , Nov 07, 2008 3:34PM
@52 back in your cage.
Posted by guest , Nov 07, 2008 3:41PM
@50 "everyone knows it" is not persuasive. I had lunch with a former Citadel colleague recently who feels like I do - he paid us a ton, never lied or did anything ethically challenged, and was inspiring because he literally was the Smartest Guy in The Room. He was commercial, but that's called being a good businessman. I left in 01 and things may have changed, but all of the anger seems misplaced. Why not go out and build a better mousetrap?
Posted by guest , Nov 07, 2008 5:07PM
@55: if you've heard the Shriek, you know it. The man's got some pipes and it ain't pretty.
Posted by guest , Nov 07, 2008 7:27PM
#55, was helping to take down Bear Stearns ethical? KG helped kindle the fire that ended up enveloping him (with a little help from, The bald, The Beard, Dan Loeb, Stevie ect) Nobody I know is crying for him>
Posted by guest , Nov 07, 2008 7:34PM
@57: horseshit.