Citadel makes history

Ken Griffin’s Citadel has replaced Ray Dalio’s Bridgewater as the most successful hedge fund of all time—the MOAT, if you will—after generating US$16 billion for investors last year. 

Driving the news: The $54 billion hedge fund made a 38.1% return in its main fund last year. That sounds pretty good, but it sounds even better when you consider hedge funds, overall, fell by 4.25% last year, according to an index tracking many of the top players.

  • LCH Investments, a fund of hedge funds, estimated a return of 3.4% at the top 20 managers and losses of 8.2% at the rest of funds, per Bloomberg. 

Why it matters: Citadel’s profits represent the biggest dollar gain by a hedge fund in history, surpassing the ~$15.6 billion pocketed by John Paulson in 2007 through bets against the US subprime mortgage market (described as the “greatest trade ever” in one book). 

  • The gains generated “reflect their increasing dominance in strategies which do not depend on rising asset prices,” said LCH Chairman Rick Sopher.
  • Instead, macro strategies are tied to developments in interest rates, foreign policy, currency exchange rates, and international trade agreements. 

Bottom line: Last year was generally a great year for macro funds, which base their investment strategy on high-level economic and political events rather than being closely tied to equity markets (which tend to slump during periods of economic uncertainty).