CHICAGO Citadel Investment Group LLC is moving to capitalize on financial chaos even as the turmoil batters its main hedge fund business.
Despite steep trading losses, Chicagos biggest hedge fund is hiring while rivals slash payroll and expanding while others retrench.
On one front, $20 billion Citadel is working with CME Group Inc., Chicago, to create exchange markets for trading of the arcane credit derivatives that nearly paralyzed global finance in recent weeks. On another, its expanding into traditional money management by offering stock and bond funds to institutional investors suddenly leery of highly leveraged hedge funds.
The moves reflect Citadel founder and Chief Executive Officer Kenneth Griffins ambition to create a broad-based financial services firm on par with the giants of Wall Street. Mr. Griffin launched Citadel 18 years ago as an arbitrage trader of convertible bonds, but the firm now spans a range of financial businesses from stock options trading to risk management consulting.
There are very few if any other (hedge funds) that are doing that type of stuff, said Kenneth Heinz, president of Chicago-based Hedge Fund Research.
Citadel has been hit harder than its peers by collapsing financial markets. Its largest fund is off 17% for the year, having lost 14% in September alone. That compares with a 6.9% drop for the wider industry last month, according to HFR.
But those same convulsions create opportunity for Mr. Griffin as longtime pillars of finance like Lehman Brothers Holdings Inc. and Merrill Lynch, both New York, fall. Citadel snapped up three senior Lehman traders last week after the New York firms bankruptcy filing and has hired away so many executives from JPMorgan Chase & Co., New York, that the bank boycotted Citadel as a trading partner in retaliation.
JPMorgan abandoned the boycott after one day, another sign of Citadels growing clout. As the largest market-maker in stock options, it handles nearly 30% of options trades in the United States.
Diverse revenue streams help Citadel absorb trading losses that would stagger other hedge funds. It also benefits from a more stable capital base, tapping corporate bond markets as well as bank credit for financing. And it requires investors to keep their money in its funds for at least three years.