(Adds Citadel's comments on its future)
By Svea Herbst-Bayliss and Karen Brettell
BOSTON/NEW YORK Oct 24 Citadel Investment
Group, one of the world's biggest hedge funds, said on Friday
it has $8 billion in available credit and sought to quell
rumors it was liquidating some portfolios after its two main
funds had lost 35 percent since January.
Reacting to persistent market talk it had asked the U.S.
government for a cash injection and that financial regulators
were coming to inspect its accounts, Chicago-based Citadel held
an unusual and hastily arranged conference call.
Its founder Kenneth Griffin, one of the $1.7 trillion
industry's most prominent players and someone who rarely speaks
in public, and Gerald Beeson, its chief operating officer,
blamed the dislocations in the bond and credit default swap
markets for the bulk of the loss in Citadel's main funds. Panic
also played a major role, they said.
The men told throngs of people who had jammed the phone
lines at the start of the call that Citadel, which manages
roughly $18 billion, has 30 percent of its assets in cash and
U.S. Treasuries locked away in a box at the Bank of New York
and was in no danger of collapsing.
While the firm's main Kensington and Wellington funds have
lost 35 percent this year, Beeson explained the bulk of losses
occurred in the weeks after Lehman Brothers Holdings collapsed
and filed for bankruptcy in mid-September. The men said
Citadel's other businesses were strong.
Recently the fund firm, which has long been known as an
aggressive trader, has branched out into other businesses like
executing a large bulk of American option and stock trades.
It has hired a string of bankers from JP Morgan Chase & Co
in a move that so angered the New York-based bank that it sued
the head hunter who helped broker the hires.
But because Citadel has traditionally delivered out-sized
returns, such as 20 percent annually from 1998 to 2007, word of
the its swelling losses -- the funds suffered their worst month
ever in September -- came as a huge shock even as thousands of
other hedge funds are also nursing double digit losses.
The average hedge fund has now lost roughly 19 percent,
according to data from Hedge Fund Research and industry
analysts expect thousands of funds, including some multibillion
dollar players, to collapse in coming months.
Credit default swaps on Citadel's debt have been quoted at
distressed levels for the past week, indicating concerns over
the fund's viability, though trading in the swaps has been very
Griffin, 40, who started his investing career in his
Harvard dorm room, firmly brushed off talk that the firm might
fail. "We have made it through 18 years and we are confident we
will make it through the next 6-to-8 weeks as we approach year
end," Griffin said.
He also stressed that the "tremendous dislocations in the
market" have also created "tremendous opportunities".
So far investors seem to be taking the firm at its word as
the men said investors' requests to get their money out have
been modest, totaling only a few percent of capital. Clients
have until Nov. 15 to notify Citadel if they want to exit by
Beeson and Griffin repeatedly described recent events as
unprecedented and Beeson called Lehman's bankruptcy "the
greatest dislocation we've seen in money market history."
To calm frayed nerves, Citadel had issued a statement early
on Friday saying that it is "business as usual around the
But as the day wore on and the rumors kept coming, the
company arranged the call with Griffin, who rarely gives
interviews, but who has been asked to testify before Congress
next month along with other industry icons and fund managers
George Soros and John Paulson.
Earlier this week, Griffin told a group in Chicago that he
sees a changed world for hedge funds as policymakers around the
world have chosen the winners and losers. "The winners are the
banking system," he said, adding that he also sees the need for
a new fiscal stimulus package.
(Editing by Andre Grenon, Tim Dobbyn, Leslie Gevirtz)