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.
(page 3 of 4)
To take full advantage, Citadel-which also has offices in New York, San Francisco, London, and Tokyo-will need to get much larger, and that means attracting a deeper and wider pool of capital. Some financial industry observers say Griffin is looking to pump up his hedge fund into a $100-billion enterprise-a number he dismisses as "hyperbole." There is no target amount be-cause it's not about "how much money is raised, but what's earned," Griffin says. (Another way of attracting money is by turning Citadel into a publicly traded company, but that's a remote possibility, Griffin asserts.)
Still, no matter Citadel's ultimate size, it intends to add to its Chicago presence. It will be bolstering the ranks of its 1,000-person staff, bulking up on well-paid traders, technicians, computer code writers, and whatever support staff is necessary to make the place hum. "It's not just 1,000 jobs created in the last 15 years-it's unlimited careers," he says.
In continuing to grow, Citadel will expand the need for legal, accounting, and other corporate services the Chicago market can muster. Not a bad deal for the area, especially considering that Citadel perhaps already has made a greater impact on the community than, say, Boeing Co., which in 2001 was wooed by the city and state with an estimated $50-million grab bag of subsidies over nearly 20 years to move 400 headquarters jobs here from Seattle.
In addition, Griffin's expansion would help keep Chicago competitive within consolidating global financial markets. Already, stock exchanges are marrying, and many experts predict more consolidation, including mergers that could involve those stalwarts of the local futures scene: the Chicago Board of Trade, the Chicago Board Options Exchange, the Chicago Mercantile Exchange, and the regional Chicago Stock Exchange.
Citadel's big plans sound pretty good, provided they work. That's not a certainty, especially in the risk-heavy world of hedge funds, which some critics claim are secretive and virtually unregulated entities. Besides drowning its investors, a sinking hedge fund, if allowed to go unchecked, could seriously damage financial markets and the economy. It nearly happened in 1998 with the collapse of Long-Term Capital Management, a hedge fund that was thrown a life preserver in the form of a U.S. government–led bailout. A couple more of those and the consequences would be dire, say market experts and economists.
Recently, Standard & Poor's, the financial ratings agency, set off a warning flare. In a new report on hedge funds, it said big losses could hurt institutional investors (such as pension and college endowment funds), forcing banks and other lenders to pull back credit and slow the economy to a crawl.
"Hedge funds are still the Wild West of the financial services industry," says Andrew Stoltmann, a Chicago-based securities attorney who specializes in shareholders' rights issues. "It's just a matter of time before something blows up."
Griffin disagrees. He sees dealing with volatility as part of a hedge fund manager's calling, and he contends that there are ample regulatory safeguards now to blunt excesses. Griffin points out that any hedge fund's dealings with a bank or financial institution, or any investment in nearly any kind of company or any country, is evaluated by some regulatory entity, domestic or international. "To call [the hedge fund business] unregulated is fanciful," he says. To keep regulators at bay, Citadel is supporting the effort by the national hedge fund trade group to beat back any new regulations. So far, the effort has been a success.
While reticent about his business affairs, Griffin is becoming more open about his and his wife's growing involvement in the city's cultural, civic, and social scenes. Once he gets going, Griffin becomes a charged civic booster, talking about the beauty and cultural allure of Chicago. He notes that while he was courting his wife, who lived in New York, they frequented the Art Institute and the Chicago Symphony (the two were married in 2003 and had a garden reception at Versailles). "Not saying I had to recruit her to Chicago," he says. "But [the cultural amenities] didn't hurt."
Did you like what you read here? Subscribe to Chicago Magazine »
