Charging the Citadel

Chicago hedge fund manager called to Congress

By Steve Rhodes
|  Thursday, Nov 13, 2008  |  Updated 3:24 PM CDT
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Charging the Citadel

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Will Ken Griffin teach Congress a thing or two? Or will he be the one getting the lesson?

One of Chicago's stealthiest, wealthiest citizens has been summoned to Congress today to testify about his controversial hedge fund.

Our very own Ken Griffin will join four others - including George Soros - appearing before Rep. Henry Waxman's House Committee on Oversight and Government Reform.

Dealbook has a preview:

"Mr. Griffin, who runs the giant hedge fund Citadel Investment Group out of Chicago, is having his worst year ever with two funds down more than 30 percent this year.

"In his prepared remarks, Mr. Griffin blames the current financial crisis mainly on opaque derivates including credit default swaps. He calls for a central clearinghouse for the swaps market and mentions that Citadel recently teamed up with the CME Group to create an exchange for credit default swaps.

"'Proper regulation' of hedge funds is 'critical,' Mr. Griffin says, but he does not offer any specific measures."

Griffin started trading out of his Harvard dorm room in the 1980s, the New York Times notes. Now, Citadel is "viewed as the bellwether for the industry because it trades in most types of assets."

Local business journalist Bob Reed calls Griffin the "anti-Trump" in the blog post "Congress Takes Aim At Griffin's Citadel."

"For Griffin," Reed writes, " it does not promise to be an enjoyable session. Aside from his intense dislike for publicity, Griffin is up against Democrat Henry Waxman, who chairs the committee,and is known for being pro-regulation and not very happy with the investment banking/hedge fund world. The combative Waxman isn't shy about publicly broiling Captains of Commerce who think otherwise. And Griffin despises the idea of greater scrutiny of his company, which has $20 billion in assets under management, or the aggressive policing of the hedge fund industry."

Reed expects a host of "thorny" questions to be raised, including Griffin's compensation.

Citadel is under attack from other quarters as well.

"I don't know about Citadel other than the fact that all I hear is 'genius personified,' but funds I know that are down 35% are SOURCES OF FUNDS because no one has come back in this market," Jim Cramer wrote recently. "Again, let me be clear, the press has intimated that Citadel is a citadel, that it is rock-solid and that no one in his right mind would challenge Ken Griffin.

"I come back with a simple homily: When you are down 35%, they run from you, not to you. The whole purpose of a hedge fund is to hedge, to make money in the bad times - that's the only way they can charge those fees - so no one ever 'feels great' about a down-35% manager."

Meanwhile, Griffin told MidwestBusiness that "This financial calamity is about greed and fear. We are unwinding out of that now."

Perhaps. But in the unwinding, Griffin is about to become much better-known, not only in his hometown, but across the country.

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