Citadel Investment Group Investors

Citadel Seeks to Regain Investors' Trust After Steep Losses

The story of Citadel's Kenneth Griffin is a great illustration of the obstacles facing hedge funds. Last year, during the financial crisis Griffin's hedge fund lost $8 billion of his investors money and now he is in the difficult position of having to regain their trust. Citadel Investment Group's larger hedge funds lost 55%, much higher than the average 19% decline. Those losses led investors to try to leave the fund but in the case of Citadel's largest funds, Kensington and Wellington, investors were denied redemptions. Many other hedge funds are in Mr. Griffin's situation, having to persuade wary investors that he can make up for the heavy losses suffered in the financial crisis.

In a September interview in his Chicago office, Mr. Griffin expressed exasperation at investors' desire to keep dissecting last year's disaster, comparing their fascination with people's inability to look away from a car crash. "I've told the story of 2008 many times," he said.

Citadel's biggest mistake last year, Mr. Griffin said, was putting too much faith in regulators' ability to deal with the global meltdown.

Mr. Griffin's predicament reflects broader troubles at hedge funds world-wide. For much of the decade, hedge funds ranked among the hottest investments. But these largely secretive, complex investments, heavily reliant on borrowed money, were hammered in 2008 by the crisis in the world financial system.

But a parade of frauds, the insider-trading allegations swirling around Galleon Management and the weak economy have kept big clients (pension funds, endowments, the super-rich) from plowing in more money. Hedge funds crave new investments to make up for losses and withdrawals they've suffered. Source

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