Citadel

  • 16 Jan 2007 at 10:10 AM
  • Citadel

This Is Why The Nebbishy Master Of The Universe Can’t Sleep At Night

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citadel.jpgRemember, back in November, when there were all those rumors about a hedge fund in trouble, and even though Citadel vehemently—almost suspiciously so—denied that it was them, people were still kind of like “Sure, it’s not you, Citadel, we believe you” wink, wink? Apparently, according to Bloomberg, they weren’t bluffing. (SAC Capital pretty much cleared its name, too, but who cares about looking good to other hedgies when you’ve got a $54 million party-foul to deal with?)

Hedge funds run by Steven Cohen and Kenneth Griffin gained more than 30 percent last year, the industry’s best performance since 2003, while Goldman Sachs Group Inc.’s flagship fund declined for the first time in seven years.
Cohen’s SAC Capital Advisors LLC returned 34 percent and Griffin’s Citadel Investment Group LLC also topped 30 percent, helped by energy bets it took over after Amaranth Advisors LLC collapsed in September, according to investors in the funds. Goldman’s Global Alpha Fund ended the year with a 6 percent loss.

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Citadel, SAC Funds Double Returns of Peers as Goldman Declines [Bloomberg]

    • 07 Dec 2006 at 4:22 PM
    • Amaranth

    Turning Amaranth Lead Into Gold For JPMorgan and Citadel

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    citadelgraphic1.jpgToday’s edition of Platt’s Energy Trader takes in depth look at how Citadel and JPMorgan took over Amaranth’s energy portfolio, turning Amaranth’s losses into profit. The basic outline of the story is that after gas prices sank and the spread between March 2007 and April 2007 natural gas futures shrank, Amaranth found itself in the troubling position of having to sell off assets, in part to meet the margin calls of its broker, which happened to be JP Morgan. Citadel and JP Morgan then teamed up and bought the portfolio at a steep discount—a move that some at the time thought looked like a bailout of Amaranth.
    As it turned out, Amaranth collapsed anyway. It’s energy trading desk was at the heart of its operations, and after the meltdown it had little hope of going on. And the “bailout” was anything but an act of charity or an LTCM-style attempt to shore up market stability. JPMorgan and Citadel had their eyes keenly on the prize—profits. In a matter of weeks, JPMorgan turned around and sold it’s half of the Amaranth position to Citadel, pocketing a cool $750 million.
    It must be nice to be a JPMorgan prime brokerage client. First they squeeze you on the margin call, then scoop up your assets and make $750 million by selling them. Wonder how Amaranth founder Nick Maounis feels about JPMorgan these days.
    Here’s how Platt’s describes Citadel’s side of the bargain.

    Citadel acknowledged that there is still substantial risk connected to the remaining Amaranth trades, and it set aside cash reserves to cover those risks. “These reserves reflect the illiquidity of the portfolio and the operational risks involved in the initial assumption of the portfolio,” Citadel said.
    Citadel said it expects to have eliminated those risks, and the need to reserve funds, by the end of the year.

    Which is to say, Citadel expects to have fully turned-around the trades that brought down a large and long-standing hedge fund in a matter of three-months. Like we said earlier, damn it’s good to be Ken Griffin.

      • 07 Dec 2006 at 2:06 PM
      • Citadel

      Citadel Sells $500M Of Those Medium Term Notes

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      citadelgraphic1.jpgWell. That certainly didn’t take long. Citadel sold the first batch of notes on its debt offering, pulling in $500 million, according to a source cited by Bloomberg. Damn it must feel good to be Ken Griffin.

      Citadel Investment Group LLC, the hedge fund controlled by Kenneth Griffin, sold $500 million of five-year notes today in the first-ever sale of bonds by a hedge fund, according to a person familiar with the transaction.
      The fund sold the notes at a yield of 1.90 percentage points more than similar-maturity Treasuries, said the person, who declined to be identified because the sale is private. The average yield premium, or spread, on similarly rated notes is 1.22 percentage points, according to data compiled by Merrill Lynch & Co.
      The sale by Chicago-based Citadel may allow it to rely less on financing from Wall Street investment banks. The bonds will be sold through a medium-term note program.

        • 01 Dec 2006 at 12:44 PM
        • Amaranth

        Amaranth Deal Approved At Highest Levels Of Citadel

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        Citadel’s acquisition of Amaranth’s energy portfolio was approved by the Chicago-based hedge fund’s founder Ken Griffin himself. Speaking to a group of potential investors on a conference call this afternoon, the Griff revealed that he personally approved the transaction in which Citadel and JPMorgan teamed up to acquire the energy portfolio that had resulted in a meltdown at Amaranth. Other top people at Citadel also reviewed the transaction, including the head of the fund’s energy trading group and a sub-set of the firm’s eleven-member management comittee.
        Until now it wasn’t known how far up the chain the Amaranth transaction had to go. The answer is: all the way. So those of you who thought the Griff spent his time contemplating his fancy art collection now know, at the very least, that the collection includes Amaranth’s energy portfolio.
        We’re listening to the Amaranth conference call right now. Probably have more to say on this later.

          • 29 Nov 2006 at 12:35 PM
          • Citadel

          Citadel Will Soon Know Everything

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          Wow. Did the hedge funds who handed data over to the PlusFunds group not have some sort of confidentiality agreement in place? Buying the database versus giving up your trading strategy to the database. It’s like a contest between genius and genius in reverse.

          Citadel Investment Group LLC, one of the U.S.’s largest hedge-fund groups, is looking to get a leg up on some of its competitors by securing access to a database that details their trading positions over a four-year period.
          PlusFunds Group Inc., a bankrupt hedge-fund operator that supplied data for the now-defunct Standard & Poor’s Hedge Fund Index, has asked for court permission to sell Citadel a non-exclusive license to its database of 40 hedge funds for $75,000.
          If the request is granted next month, Citadel will be able to access the trading history of certain funds managed by hedge-fund groups that include Westport, Conn.-based Bridgewater Associates Inc., London-based GLG Partners LP and Madrid-based Vega Asset Management Management LLC.
          Since the trading information is at least five months, and as much as four-and-a-half years, old, Citadel is unlikely to find much to trade upon, said a hedge-fund advisory executive. But it could give the Chicago-based firm valuable insight into competitors’ trading methods and styles.

          Citadel seeks access to hedge competitor trading data [MarketWatch]

            • 29 Nov 2006 at 11:30 AM
            • Citadel

            Citadel: The Anti-LTCM?

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            With the medium-erm debt issuance announced yesterday, Citadel may be on it’s way to becoming the anti-Long Term Capital Management—a hedge fund that can increase its leverage without incurring margin call risk if it’s investments go south. LTCM ran into trouble when its investment strategy blew-up and it became clear it wouldn’t be able to make its margin-calls. With piles of unsecured debt in its coffers, Citadel should be better able to weather the sort of stormy market that toppled LTCM.
            Bloomberg does a good job of describing how the bonds might help free Citadel from some of the traditional credit risks faced by hedge funds.

            The plan may cut Chicago-based Citadel’s reliance on financing from Wall Street investment banks, which provide leverage and trading services to hedge-fund clients through prime brokerage units. The bonds will be sold through a medium-term note program, meaning Citadel can sell the total amount of debt over time rather than in a single offering…
            “This marks a historic point in the industry, a coming of age,” said Daniel Koelsch, S&P’s analyst for Citadel in Toronto. “Before, a hedge fund was always tied to a prime broker.”
            The notes can be issued for any maturity. The debt is guaranteed by Citadel’s two biggest hedge funds: Citadel Kensington Global Strategies Fund Ltd. and Citadel Wellington LLC. The funds would have to back the debt should either fund rating lose its investment-grade rating.
            “Their design is to reduce their reliance on Wall Street firms for funding, which would eventually provide them with a competitive advantage because they won’t be forced into liquidation during periods of stress,” Fahey said.

            In other words, “No Margin Calls. No Problems.”
            Citadel Hedge Fund May Issue $2 Billion in Bonds

              • 29 Nov 2006 at 9:28 AM
              • Citadel

              Shorting the Citadel Bonds?

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              We hear that news of Citadel’s debt offering has sparked the idea around some trading floors that it might not be a bad idea to short the bonds. Since this is the first time a hedge fund has issued public debt of this sort, everyone is still feeling their way through this. But the general idea would be to short the bonds as a hedge fund industry hedge—a double hedge, if you will.
              “If typical hedge-fund trades come under pressure, Citadel will come under pressure, and if citadel comes under pressure, these bonds will widen for sure,” a source says. “Price talk is L+110bps area, which makes it a reasonably inexpensive hedge.”
              One problem with shorting the bonds is that they may be very hard to borrow. Citadel is probably seeking reassurance from the placement agents, Lehman and Goldman, that the bonds won’t be going to investors likely to look for a quick sale or lend them out. Without an investor willing to lend out the bonds for shorting purposes, there may be no way to short the bond directly. The most obvious alternative would be to buy credit default swaps with the bonds as the referenced asset. But we’ve got a creative audience. So come on, gang. Any new ideas on how to short the Citadel bond issuance?