Ken Griffin, whose hedge fund company Citadel Investment Group suffered its biggest loss in 18 years of business last year — to the tune of 55 percent — has turned conservative.
The 40-year-old investment titan, who began trading convertible bonds 22 years ago in his Harvard University dorm room, is moving away from those investments.
The two biggest funds in Citadel’s $13.5 billion firm are abandoning convertible bond and other relative value trades that require large borrowing and replacing them with trades based on fundamental research, Bloomberg reports.
At its peak in May 2008, Citadel borrowed nine times its net assets to create $145 billion in gross assets. That was triple the average leverage ratio of hedge funds in general, according to a report from JPMorgan Chase, as cited by Bloomberg.
The firm had to sell assets to shrink its debt.
“This was the first time in 20 years that we have played defense,” Griffin told Bloomberg.
“In other crises, we had enough firepower in reserve. We could be buyers.”
Now Griffin has changed Citadel’s business model. He has hired 70 people to operate a full-service investment bank, which he tells Bloomberg will compete with Goldman Sachs and Morgan Stanley.
Griffin may have picked the wrong time to abandon his convertible arbitrage strategy.
That category has returned 35.6 percent this year through August, according to the Credit Suisse/Tremont Hedge Fund Index. That’s the top performer of 10 different strategies.
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