Hedge Fun

Over the past 15 years, Kenneth Griffin has quietly—even secretively—built one of the world’s largest and most successful hedge funds. Now he and his wife, owners of a $60-million Cézanne, are rising stars on the city’s culture and charity scenes.

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Photo: Paul Elledge

 
“There’s a level of urgency,” Griffin says of his ambition to turn Citadel into a global investment powerhouse.

If you haven’t yet heard about the local financial whiz Kenneth C. Griffin or his company, chances are you’re not alone. Although Griffin and his Citadel Investment Group L.L.C., a hedge fund, are known within the rarefied universe of big money, they have remained mostly a mystery to the outside world.

That is beginning to change. Started by Griffin in 1990, Citadel now commands nearly $12 billion in assets, making it one of the world’s largest hedge funds. Inside the company’s headquarters at 131 South Dearborn Street, about 1,000 people labor long and hard to find unusual investments that yield large returns for clients and fat fees for Citadel. Aside from making gobs of cash, Griffin’s goal is to turn Citadel into something increasingly rare in Chicago-an elite global financial powerhouse.

Yet Griffin’s high aspirations contrast with his decidedly low professional profile-so low, in fact, he has gained a reputation as something of a recluse, even within Chicago’s tight-knit corporate community, where everyone seems to know everyone else.

Griffin’s penchant for secrecy is also ingrained in Citadel’s culture-it’s not a place where employees are encouraged to kibitz, move freely from floor to floor, or informally share information with one another. “They are on the cutting edge of proprietary trading and money management and are very careful to protect their secrets and keep their edge,” says Joseph Nicholas, chief executive officer of HFR Asset Management, a rival Chicago hedge fund. For his part, Griffin, 37, makes no apologies for his firm’s tightlipped ways, noting that the hedge fund business is highly competitive and that Citadel does not tip its hand to anyone. The more valuable a company’s business methods are, the less it is “in favor of transparency,” Griffin says.

Personally, however, Griffin, who made $240 million last year, according to Forbes, is inching into the spotlight as he and his wife, Anne Dias Griffin-who also runs a hedge fund-are becoming one of the area’s rising power couples. Increasingly, they are taking the lead on charitable and philanthropic endeavors by dedicating their time and making large personal donations, mainly in support of high culture and education. The couple underwrote a Chicago Symphony Orchestra performance at Millennium Park scheduled for September 25th, and they’re aggressively backing the University of Chicago’s Center for Urban School Improvement, a program that seeks to develop an inner-city charter high school.

The Griffins are also serious art collectors. Kenneth Griffin’s most attention-generating acquisition-said to be for $60.5 million-is his purchase of Paul Cézanne’s Curtain, Jug and Fruit Bowl, which is on loan to the Art Institute of Chicago. (Griffin bought the painting in 1999 but declines to comment on the price. If accurate, the reported amount would be the highest ever paid for a Cézanne.)

“Over the years, I’m going to give a substantial amount of my net worth away,” promises Griffin, who was ranked 363rd in Forbes’s 2004 list of the 400 richest Americans, with wealth estimated at $825 million. But he is quick to point out that to support such largess his company must thrive and grow into a world-class investment vehicle.

 

Simply put, a hedge fund like Citadel is like a mutual fund, albeit for the very wealthy, usually only institutions and individuals who can ante up more than $1 million. Hedge fund operators tend to take on greater risk and seek higher rewards than the typical asset manager. They “hedge” their bets by quickly moving in and out of investment products-everything from stocks and bonds to currencies and crude oil-at best tallying up impressive returns along the way.

The growth in hedge funds has been spectacular: there are about 7,500 funds controlling nearly $1 trillion now, compared with 1,945 of them in 1994 holding $186 billion in assets, according to industry data. Hedge fund investors include the rich, college endowment funds, large institutional investors, and even other hedge funds.

Raised in Boca Raton, Griffin began successfully dabbling in trading bonds from his dorm room in the late 1980s while attending Harvard University (with an investment grubstake of $265,000 from his family and friends). Upon graduation, Griffin, the son of a building supplies executive, moved to Chicago to work for an investment house. But he was there only briefly before he started Citadel in November 1990 with $4.6 million from investors.

Since Citadel’s inception, its annual investor return is 26 percent, after Citadel takes out its management fees, according to Bloomberg Markets magazine. Thus, a $100,000 investment made when the firm started would be worth $2.6 million now. (Citadel will not comment on its performance.) Last year, Bloomberg says, Citadel’s rate of return was 11.6 percent after fees, considered a good performance for a fund as large as Citadel. The magazine says that Citadel takes 20 percent of the profits; Citadel contends its fee structure is in line with that of other hedge fund operators.

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