Ken Griffin, Who Hasn't Had One Of His Favorite Milkshakes In Almost A Year, Does Not Want To Discuss '08

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But he's trying to raise new money and every single time he sits down with a potential source of cashola, or tries to convince an existing one to stick it out, last year is all they want to talk about. While it's unclear to us as to why Griffin doesn't just put his foot down and preempt all discussions by saying questions about 2008 are categorically off the table and that if anyone in the room so much as thinks the words "fifty-five percent loss" or "ass bleeding" or "maday!" he is gone, we respect the guy's desire to be seen as flexible, for the time being. Still, we understand how sensitive the subject of ast-lay ear-yay is with KG and so that he doesn't have to suffer through anymore PTSD flashbacks, we've decided to put together a little primer/pitch for anyone considering throwing some bills his way. The year that came before '09 will be touched on, so when you actually sit down with Kenny-b, there'll be no need to bring it up. Got it? Let's do this.
Most of you probably want to hear a little reflection on what we could have done differently. What our biggest mistake was so we don't make it again, and lose a few billion of your money. Was it too much leverage? Too much hubris? Too much time spent away from the desk on photo-shoots? None of the above.

Citadel's biggest mistake last year, Mr. Griffin said, was putting too much faith in regulators' ability to deal with the global meltdown.

Now let's talk sacrifices. Major, huge-ass sacrifices have been made in Chicago in an effort to turn things around. Whether or not they have to do with the firm's bottom line so much as Ken's newly taut one is not the point.

He occasionally dispatches his driver on a 200-mile round trip to fetch milkshakes from LeDuc's Frozen Custard in Wales, Wis., near where Mr. Griffin grew up. The folks at LeDuc's refer to the financier as "the man of a thousand shakes," based on a birthday order in 2004 that was so big, it got shipped to Chicago in a truck. But Mr. Griffin's driver "hasn't been around in maybe six months or a year," says Jim Shackton, owner of LeDuc's, whose staff in past years came to recognize him when he'd pull up to the little pitched-roof custard shop in a silver Mercedes sedan. ("Nice car," Mr. Shackton says.)


And endorsements. Bet you'd like some of those.

Mr. Yusko of Morgan Creek Capital Management says he has invested more in Citadel this year and could add additional money. "I don't think they're geniuses this year, and I don't think they were idiots last year," he said.

And of course the Goldman Sachs seal of approval.

Last year Mr. Griffin spoke frequently by phone with top executives at Goldman Sachs Group Inc., including President Gary Cohn and Chief Executive Lloyd Blankfein, regarding the markets and Citadel's financial straits, people familiar with the matter say.
"We have a strong relationship with Citadel and we felt very comfortable with our risk at the time," Mr. Cohn said recently.

Now how about a little deep talk. Let's get you somea that.

Reflecting on 2008, Mr. Griffin wrote to clients at the end of October, "Unquestioningly, some of our core strengths became liabilities last fall, including perhaps a degree of over-confidence in our ability to weather almost any market catastrophe."

And a little hindsight, which while it won't put the lost moola back in investors' pockets, per se, should make you feel safe. You're money's good with us.

If there were a repeat of 2008's market turmoil, Mr. Griffin says, his funds would lose less than 20% rather than 55%. Citadel's biggest hedge fund has rebounded 58% this year through mid-November.

In sum I'm just going to get down on my knees and beg.

Nevertheless, some investors question whether Citadel can still post big returns to match the outsized fees it charges. Despite the rebound this year in Citadel's hedge-fund performance, they still must earn back far more to recover last year's losses. Mr. Griffin acknowledges that process could take another year or even two. Until then, Citadel isn't eligible for lucrative 20% fees on the funds' profits.
This is one reason why the new hedge funds are so important: They have no ground to make up, so they can earn fees immediately. In the first quarter, Citadel told investors it was hoping to raise more than $2 billion over several years for a new fund designed to invest in currencies, interest rates and broad economic trends. However, by October, outside investors had put less than $100 million into the fund, people familiar with it say.
The fundraising has fallen short of early goals, according to people familiar with the matter. All told, Citadel says it has gotten $500 million in commitments for all of its new hedge funds.

I think we've sufficiently proved why you should get invested with us today, and also why everyone should shut it up '08. And tell you what? If things start to go south again-- which they NEVER WILL-- we'll transfer your money to the Mrs's fund. Deal?
A Hedge Fund King Comes Under Siege [WSJ]

Related

Let's Get One Thing Straight: Ken Griffin Only Accuses People Of Attempting to Gain A Competitive Advantage By Gaining Access To Proprietary Trading Strategies-- He Does Not Get Accused!

Back in October, a former Citadel employee, Yihao “Ben” Pu, was arrested and charged with "stealing trade secrets" from Ken Griffin (by "copying company data onto a removable storage device," and then attempting to sell it to Teza Technologies AKA the firm a bunch of ex-Citadel guys tried to join in 2009 before being sued for doing so by Griffin, as well as the the shop a former Goldman programmer, Sergey Aleynikov, went to jail for after giving it proprietary GS code). Now, because apparently people just can't help themselves, KG has been forced to levy another allegation of theft against some former employees who he believes took a piece of his property when they left for high-frequency trading firm Jump Trading. Does Griffin have actual evidence that they swindled him? No, not exactly. But he's got a hunch, and that hunch is based on the fact that since 2005, when people from Citadel's "tactical trading group" started leaving for Jump, "some of the strategies" employed by the TTG "have become less profitable" and are "behaving in a way consistent with their having been copied by rivals." So what KG would like a court to do is force Jump to turn over "personnel documents, strategy and trading records, and source code," which will prove him right and the Citadel defectors to be the plunderers he knows they are.  Evidence in hand, Griffin will then sue Jump and everyone named Ken Griffin will go home happy. The only issue that needs to be worked out is Jump Trading's cooperation, which so far is proving difficult to obtain. In fact, the firm is being downright unhelpful and not only that? Its legal team has accused Griffy-boy of being the thief, or at least trying to be. That's right: the way JT sees it, Citadel's new profitable algorithm development system is a two-step process that goes something like this: Step 1: Steal successful algorithms from rival firm. Step 2: Use them. In its response filing, Jump said that Citadel had no evidence that the algorithms had become less profitable because of any of Jump's actions. It said that any of the hundreds of other algorithmic trading firms could be at fault. "The petition is nothing more than a transparent attempt by Citadel to obtain a competitive advantage by gaining access to Jump's proprietary and confidential trading strategies," Jump's motion said. Your move, KG. Citadel Accuses Jump Employees Of Stealing Secrets [Reuters]