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Is Citadel’s Hedge Fund a Harmless $35 Billion Minnow or a $235 Billion Killer Shark?

Courtesy of Pam Martens

At the end of last Thursday’s 4-hour long hearing on the forces behind the wild trading in shares of New York Stock Exchange-listed GameStop, Congressman Jesus (Chuy) Garcia of Illinois asked Citadel hedge fund billionaire Ken Griffin how much money was managed by his hedge fund. Griffin replied: “We manage approximately $35 billion dollars of assets.”

Garcia than suggested that Citadel was systemically important. Since this might be construed to mean that Citadel should be under heightened regulatory oversight, Griffin quickly responded with this: “I believe that our hedge fund would not be in the category as systemically important. With $30-some billion of equity it is simply not at the scale or magnitude of a JPMorgan, Bank of America, Wells Fargo.”

To make a proper assessment as to whether Citadel is a little minnow swimming peacefully with the Dolphins or a predatory killer shark regularly looking for a fresh kill, it’s important to pay attention to what happened between Griffin’s first response and his second response. In the first response, Griffin said Citadel managed “$35 billion dollars of assets.” In the second response, he changed that to “$30-some billion of equity.”

According to the Form ADV that Griffin’s hedge fund, Citadel Advisors LLC, filed on January 15, 2021 with the Securities and Exchange Commission, his hedge fund is managing not $35 billion but $235 billionto be very specific, $234,679,962,503.

In a 2011 SEC final rule announcement, hedge funds were required to report “regulatory assets under management,” which includes not just the “equity” investors held in the hedge fund but the additional assets the hedge fund had purchased with borrowed funds – known as buying on margin. Hedge funds were also required to report assets held on behalf of foreign investors. Since hedge funds manage all of the assets they hold, and Congressman Garcia was clearly attempting to assess the size of Citadel’s systemic footprint in U.S. financial markets, it would have behooved Griffin to explain that the gross amount of assets his hedge fund was managing was actually 6.7 times the figure he had provided, that is, $235 billion not $35 billion. (Not to put too fine a point on it, but Griffin was put under oath, along with all other witnesses, at the opening of this hearing.)

Citadel’s hedge fund consists of a series of sub-funds that have varying investment strategies and asset classes including stocks, bonds and commodities. A Citadel hedge fund brochure that is also on file with the SEC explains how leverage is piled on: “The sub-funds generally invest on a highly leveraged basis, and the Funds may leverage their investments in the underlying sub-funds.”


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