Institutional Investor's Alpha Magazine - June 2008 - (Page 36)

ALPHA HALL OF FAME Was Sowood a similar story? [Last summer, Citadel stepped in to purchase Sowood’s entire portfolio, which had plummeted in value in the wake of the credit crisis.] How involved were you with Amaranth and Sowood? The swift resolution of Sowood’s liquidity crisis was important to the functioning of the world’s credit markets. It was obviously also of incredible importance to that ﬁ rm’s investors. We were in contact with Sowood around noon on a Sunday. We quickly put together a 35-to-40-person team to go through the portfolio and had six or seven people on the ground in Boston by Sunday night. We bought the portfolio before the opening of business on Monday morning. It was a sight to behold. The teamwork here on our side — and to the credit of the principals of Sowood, the focus on their side to pull this together — was quite impressive. How do investments like Sowood and Amaranth ﬁt into what Citadel does? With Amaranth, I think I slept less than an hour or two in the ﬁrst 60 hours. But none of my colleagues slept. That was just what it took to get the job done. How important is technology to Citadel? Extremely. Our chief information ofﬁcer, Tom Miglis, has a team of about 500 people who support our technology needs day in and day out. And I do believe that our technology gives us a substantial competitive advantage in the marketplace. How many ﬁrms can handle a million transactions a day? We do it every day. You’ve been outspoken about the ﬁnancial industry’s role in the credit crisis. A lot of these headline stories reﬂect what we do every day. Almost 20 years after being founded, Citadel really is at the center of the world’s capital markets. On a busy day we’ll trade well over half a billion shares of stock. Some 20 to 25 percent of all the options contracts in America will come through our four walls. And what that scale speaks to is — whether it’s 100 shares of Google or a $35 billion eclectic portfolio of assets — we can price it immediately. If you look at the reputation of Citadel, let’s talk, just for a moment, about the socalled negatives. People say, “It’s a tough place to work. It’s demanding. It’s unrelenting.” I look at these traits as strengths. Market leaders are unrelenting. They are always trying to move the standard higher. I’m very proud that we have a sterling reputation when it comes to doing what we say we’re going to do. And that’s why, when Amaranth needs a partner or Sowood needs a solution or E*Trade needs a capital infusion or the investment banks have a large risk-transference trade to do, they come to Citadel. Are you still involved in day-to-day trading? I think Wall Street dropped the ball. The losses that we’ve seen over the past nine months have been intolerable, in my opinion. It signiﬁes a lack of discipline on the capital commitment and risk management side of these institutions. What do you see as your biggest contribution to the hedge fund industry? The story of Citadel has been a huge inspiration for hundreds and hundreds of managers. Look at my background. Never went to business school. Never worked on Wall Street. And my partners and I have created one of the most powerful and successful ﬁnancial services ﬁrms in the U.S. — in the world. We have redeﬁned what a hedge fund is and can be. And for many would-be entrepreneurs who face that decision — Do I go for it or not? — I hope they look at our success story and say, You know what? It’s worth taking a shot. What does the future hold for Citadel? I’m 39 years old. The ﬁrst 20 years have been great. During the next 20 years, I need to make sure that I position this ﬁrm to be a going concern well past my last day here. And we’ll take steps as a team to create an enterprise that unquestionably has capitalizable value in the capital markets. I owe it to my partners. I owe it to my employees. I owe it to everyone who trusts me to make sure that when I am no longer part of this institution, this institution will be here. Would it help ensure that future for Citadel to go public? Well, my trading activity, or lack thereof, seems to be a constant source of curiosity for the press. I’m involved. Before we spoke today, I went through our risk reports from last week, thinking about the various positions we have on the page, talking with one of my portfolio managers about one of the large positions. I’m not out there buying and selling assets on a day-to-day basis. The guys who work for me are much better at doing that. But I’m certainly involved in asking, Where is the portfolio today? Where do we want to take the portfolio? What are the key risks we are taking? Are we being well compensated for those risks? 36 • INSTITUTIONAL INVESTOR’S ALPHA • JUNE 2008 Being public is certainly an opportunity for us to increase the strength of this organization. It is not an imperative. It’s not something that we need to do tomorrow. It’s something we have thought about and reﬂected on over the years. And we’d be foolish not to understand both the pros and cons of being a public company. I think that Citadel is well positioned to be one. Given the poor stock performance of hedge fund ﬁrms that have gone public, maybe you’ve been wise to wait. Yes, this is one situation where we didn’t have to be ﬁrst. — Interview by Michael Peltz

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - June 2008

Investor's Alpha Magazine - June 2008 Contents Letter From the Editor Longs & Shorts Cover Story: Alpha Hall of Fame Bruce Kovner Michael Steinhardt Kenneth Griffin Louis Bacon Steven Cohen George Soros James Simons Seth Klarman Julian Robertson Jr. Jack Nash Leon Levy Paul Tudor Jones II Alfred Winslow Jones David Swensen Looking Ahead: Back to the Future Research Center: Europe Hedge Fund 50 Unhedged: Let the Sunshine In

Institutional Investor's Alpha Magazine - June 2008

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