The era of explosive growth in multistrategy hedge funds is over, according to billionaire Ken Griffin, who runs one of the biggest such firms.
“That chapter has come and gone,” the Citadel founder said in Oxford, U.K. “The AUM flows into multistrategy funds are basically a push today.”
These funds have gobbled up cash in recent years by delivering mostly steady gains even during periods of market volatility, driven by a broad variety of investing approaches in their trading teams. Their ability to charge higher fees, spend big to recruit the best traders and fuel their positions with borrowed money have made them the most influential force in the $4.5 trillion hedge fund industry.
Citadel’s capital has risen more than five times to $65 billion since 2008, while rival Millennium Management has expanded at the same clip to over $70 billion, and D.E. Shaw & Co. has amassed more than $60 billion. Many of the top players are no longer actively raising cash as a talent crunch and challenges moving in and out of leveraged bets curtail their ability to keep growing.
Assets managed by multistrategy hedge funds dropped slightly to $366 billion this year, the first decline since 2016, according to Goldman Sachs Group. Such funds have grown from just $134 billion in 2017.
For Griffin, the growth trajectory was boosted by capital returns to investors, known as limited partners or LPs. “Let’s face it: that was driven by the fact that we in particular were returning billions of dollars of capital a year back to LPs. They were looking to put that money to work,” Griffin said.
Citadel has regularly given back profits to control its size, returning $25 billion to clients since 2017.
The 56-year-old hedge fund titan spoke to Bloomberg shortly after addressing an audience packed with students at the historic Oxford Union on Nov. 18, where he discussed a range of topics from Donald Trump’s potential tariff policies to investing and immigration.
In an industry known for its secrecy and reluctance to speak in public forums, Griffin has been a notable outlier. He’s backed a lower-tax, free-market agenda and been a vocal critic of anti-Israel protests across elite college campuses in the U.S.
He donated more than $100 million to pro-Republican political action committees in this presidential cycle, according to campaign finance tracker OpenSecrets, and last month predicted that Trump would win the presidency.
When asked about a potential Trump trade for the next four years, Griffin took a long pause before predicting that companies previously subjected to a regulatory onslaught were going to do better.
“The biggest shift is not a particular company per se, but it’s that the animal spirits in America are being reignited,” Griffin told Bloomberg.
He predicted that businesses under the new administration will be willing to take more risk, build more factories, put more money back into research and development, and allocate more money to long-term investments from customer acquisition to new technology.
“That’s the biggest sea change,” Griffin added. “That’s going to lift all boats.”
Turning to the risks emerging in the hedge funds industry, particularly the “basis trade,” Griffin said that market is much smaller today.
The trade, popular with a handful of the world’s biggest hedge funds, seeks to profit from the tiny price gaps between Treasuries and derivatives known as futures. The Financial Stability Board is mulling a deep dive into these wagers.
“The basis trade has fallen out of the conversation,” Griffin said. “The price discrepancy between futures and bonds, particularly in the US dollar markets, has narrowed and the amount of money deployed has come down.”
The Citadel founder called tariffs — a central tenet of Trump’s economic agenda — a “long, slippery slope” that can be profitable in the short run but damaging to U.S. companies’ ability to compete globally in the long run.
“I am very anxious about the president’s willingness to engage in tariffs as a matter of trade policy,” Griffin said.
Rather than having to “deal with regulatory overreach,” U.S. businesses will “return” to creating jobs and growing their businesses and the economy over the next four years, Griffin said.
Griffin, who launched Citadel in 1990, has since built the firm into a $65 billion powerhouse and amassed a personal fortune now worth about $42.2 billion, according to the Bloomberg Billionaires Index.
