High-frequency trading has been good to billionaire Ken Griffin.
His firm, Citadel, returned more than 300% in a fund started as a high-frequency strategy in late 2007, according to two people familiar with the Chicago-based money manager. The $830 million pool, which added other strategies in recent years, topped the 44% gain of the U.S. stock market in the six years through 2013 as well as Mr. Griffin's two main hedge funds, which together have $8.8 billion in assets under management and rose 45% in the period.
The returns of Citadel's Tactical Trading fund give a glimpse of the fortunes made in high-frequency trading — the rapid buying and selling of securities that relies on ultrafast computers to exploit market inefficiencies — following the financial crisis, and before profits shrank with increasing competition. The practice is facing unprecedented scrutiny following Michael Lewis' latest book, “Flash Boys,” which argues that it has helped rig the U.S. stock market.
“High-frequency trading hit its high in 2008 through 2010,” said Larry Tabb, founder of market-research firm TABB Group. “Then the trades started getting crowded in U.S. equity markets and it got harder to generate revenues.”
Citadel's Tactical Trading fund jumped about 31% in 2008, when the S&P 500 index slumped 37% and hedge funds broadly lost 19%. The fund has returned an annualized 26% since the beginning of 2008, with just five losing months, said the people, who asked not to be identified because the fund is private. The worst drop was a loss of 1%.
Mike Geller, a spokesman for Citadel, declined to comment on the fund performance.