In Chicago, the hedge fund world orbits Citadel. The mega fund is the only one in the city, and has long been considered a training ground for ambitious up and comers. Traditionally, these money makers fall in line, but a new cadre of rising stars has left to start their own firms. Taking out Citadel will truly be a monumental task.
When Ken Griffin on chicagobusiness.com set out to make Chicago’s only mega hedge fund, he brought in talent from all across the world. He brought in physicists, judo instructors, and New York investment bankers. These people all proved their value at Citadel, but have taken their pedigree to work for their own companies.
The most successful of the Citadel spin offs is Magnetar. In May, they sold a minority stake in the company to Blackstone. Blackstone is a New York based asset manager, and the merger between the two helps open a variety of doors for Magnetar. Blackstone provides the hedge fund with a massive influx of capital to fund Magnetar’s ventures. The blog Left Handed Right Mind quotes the CEO of Anchor Bolt Capital as saying that the deal is without a question a good move to expose yourself to new opportunities.
Historically, hedge funds were subject to very lax regulations from the government. In more recent years, the firms have seen increased regulatory scrutiny. They are commonly referred to as alternative investments because the funds tend to place their money in a large number of uncommon places such as foreign currency and energy futures. Some hedge funds were allegedly complicit in the great recession of 2008, and federal regulators decided that it was time to crack down on hedge funds.
Deals like Magnetar’s are highly unorthodox in the world of hedge funds. It decreases the autonomy and control that the staff at Magnetar have. Pavandeep Sethi is a former Citadel employee, and he is the founder and president of Gladius Capital. He says that while he would never sell his firm, he understands why Magnetar would make a deal that led them to better growth. According to him, the devil is in the details for these deals. Galdius has raised 1.6 billion in funds since it was founded in 2009, and while Sethi says he isn’t eager for explosive growth, he is aware that any firm that isn’t growing is dying. For now though, Citadel remains the king of Chicago’s hedge funds, but the new challengers on the horizon could threaten that dominance in the coming years.