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Ken Griffin: the world’s greatest investors
Griffin’s first focus was on convertible bond arbitrage, taking advantage of the fact that the price of convertible bonds.
Ken Griffin was born in Daytona, Florida, in October 1968. While still a student at Harvard, he started buying stocks and options, trading with money raised from family and friends. His success at this led hedge-fund manager Frank Meyer to give him $1m, which he turned into $1.7m in less than a year. At the end of 1990 he founded his own hedge fund, Citadel, which now has more than 1,000 employees.
What is his strategy?
Griffin's first focus was on convertible bond arbitrage, taking advantage of the fact that the price of convertible bonds (bonds with the option to convert into shares) is sometimes slightly different from the value of the underlying instruments.
Later on his strategy evolved into looking for distressed assets he could buy cheaply, backed by large amounts of leverage and rigorous quantitative analysis. To enable him to hold positions for longer, he insisted on terms that made it harder for investors to withdraw their money. Since 2002 Citadel has also made some of its money from providing financial services to other funds through a subsidiary.
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Citadel's success has been spectacular, with assets under management rising from under $5m when it was founded in 1990 to around $25bn today. There have been several setbacks along the way. Indeed, during the 2008 financial crisis its capital fell by more than half, and there were rumours that it would require a government bailout. However, since then it has bounced back strongly. Citadel's success had enabled Griffin to amass a $7.7bn personal fortune (according to Forbes).
In 2006, the hedge fund Amaranth made a series of bad bets on the energy market. Facing mounting losses, it was forced to sell its portfolio at a fire-sale price. Citadel (with JP Morgan) snapped them up and made a huge profit. Citadel also picked up large amounts of distressed assets cheaply in the wake of the collapse of the hedge fund Long Term Capital Management in 1998 and the bankruptcy of Enron in 2001.
What lessons are there for investors?
Griffin's success with distressed assets shows it is possible to make money by going against the market consensus. Citadel's near collapse in 2008 shows the risks of taking on too much leverage. And his decision to impose restrictions on investors withdrawing their money shows the importance of making sure that you are liquid enough to endure any temporary setbacks.
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