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Billionaire Trader Ken Griffin Navigates A Flock Of Black Swans

Billionaire Trader Ken Griffin

By irinelvocal2Published 2 years ago 4 min read
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Ken Griffin is staring pensively out a wall of windows on the tenth floor of a Midtown Manhattan office building, one of three locations in New York City occupied by his $47 billion Chicago-based hedge fund, Citadel. It’s early March. Vladimir Putin’s mechanized assault on Ukraine has stalled; he’s now making veiled threats about nuclear strikes. From Griffin’s vantage point there’s no mushroom cloud on the horizon, but the prospect is deeply worrying to the financier.

“I grew up in a world where we were children of mutually assured destruction,” says Griffin, 53. “It was ‘get under your desk to brace for the impact of a nuclear blast.’ To see us return to the rhetoric of that moment is a huge setback.”

The S&P 500 has fallen 12% year to date. European stocks and the Nasdaq are down nearly 18%. Oil prices are surging. This flurry of bad news is coming hot on the heels of a stellar 2021 for Citadel, a year when the hedge fund gained 26% and Griffin personally earned $2.5 billion. He’s now worth $27.2 billion, but he has bigger things on his mind than the size of his personal fortune.

“The continued unfolding of this catastrophe in Ukraine is a giant unforced error by mankind,” he says. In hindsight, maybe it wasn’t a great idea for Ukraine to have taken America’s advice in the 1990s and returned its nuclear weapons to Russia after the Soviet Union’s collapse. With NATO countries reawakening to the existential threat Russia poses, Griffin points to the obvious beneficiaries of rearmament, namely defense and energy stocks—both already trading at elevated levels.

But that’s short-term thinking. Longer term, Griffin sees a flock of black swans looming. He predicts that the severity and character of the sanctions the West has imposed on Russia will have a long-lasting impact on the dollar-based global financial system. The unprecedented moves by Western powers to shut off Russia’s access to capital markets heralds the weaponization of the dollar, he says.

There will be serious repercussions, with Russia, China and others seeing no option but to diversify away from the greenback. De-dollarization by a China-Russia-Iran-Brazil trading bloc could easily morph into the exclusion of American companies and investors from fast-growing markets. “Have we laid the seeds for the setting of the American era of technological superiority?” Griffin asks.

It’s worth listening to him. Griffin is a big-picture guy whose track record is nearly unparalleled on Wall Street. He’s had only two down years in the past 31, earning his investors an average of 19% per annum. What has driven those returns is his close study of macrotrends and his uniquely powerful position at one of the fulcrums of global finance.

Citadel Securities, Griffin’s other business, is one of America’s largest market makers. When it comes to equities, the firm accounts for more than 25% of all U.S. trades, 40% of retail trades and more than 30% of stock options volume. Griffin employs smart mathematicians and scientists who harness cutting-edge technology—predictive analytics, machine learning and artificial intelligence—to analyze huge amounts of data in real time. As a result, Citadel Securities is expanding into new markets and growing more rapidly than Griffin’s hedge fund.

Though it collects a fraction of a penny per share on each trade, Citadel Securities brought in $7 billion in revenue in 2021, and for the first time Griffin agreed to share part of his empire with outsiders, selling a 5% stake to two blue-chip venture capital firms, Sequoia and Paradigm. The investment valued the brokerage at $22 billion, increasing Griffin’s net worth by $5 billion in the process.

The investment by Paradigm, which specializes in crypto, underscores Griffin’s intention to become a leading market maker in the fragmented but fast-growing cryptocurrency trading business. Citadel Securities is run by a Beijing-born data genius named Peng Zhao, 40. Zhao, who has a doctorate in statistics from Berkeley, is well equipped to lead Citadel’s charge into digital asset trading.

In casino terms, Citadel Securities is the house. It doesn’t matter if markets go up or down. As long as people are trading securities, Citadel takes its profit. Its lifeblood is volume, and despite Griffin’s consternation over the consequences of war in Europe, he knows that uncertainty and tumultuous markets will almost surely add to his billions.

“The businesses he’s built, my gosh, it’s breathtaking,” says billionaire hedge fund manager Paul Tudor Jones. Adds another billionaire investor who wishes to remain anonymous: “Griffin has reduced the cost, processing and deployment of technology so that it’s very, very hard for others to compete with Citadel.”

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