Citadel Funds Lose 13% in November, 47% This Year

Date: Friday, December 5, 2008
Author: Saijel Kishan and Katherine Burton, Bloomberg

Citadel Investment Group LLC, the Chicago-based hedge-fund firm run by Kenneth Griffin, lost 13 percent in November, bringing the decline for the year to 47 percent, according to two people familiar with the matter.

Losses at the Citadel’s two biggest funds came from investments in convertible bonds, high-yield bonds and bank loans, and investment-grade bonds, which were hedged with credit default swaps that protect the buyer in the event of a default. These same wagers started the funds’ tumble in mid-September.

“Digging out of this hole may be tough for them,” given the lack of trading in the credit markets, said Michael Rosen, principal at Santa Monica, California-based Angeles Investment Advisors LLC, which advises clients on hedge-fund investments.

The Kensington and Wellington funds, which together manage $10 billion in assets, have received requests from investors who want to withdraw about $1 billion by the end of the year, said the people, who asked not to be identified because the information is private.

Griffin, 40, had posted just one losing year since starting the firm in 1990, dropping 4 percent in 1994. Katie Spring, a spokeswoman for Citadel, declined to comment on the returns, which were reported earlier today by the Wall Street Journal on its Web site.

The hedge-fund industry has posted its worst performance on record this year, with average losses of about 22 percent this year through November, according to data compiled by Chicago- based Hedge Fund Research Inc.

The Citadel funds have made money in stocks and on so-called macro trades -- wagers on stock indexes, bonds, commodities and currencies based on macroeconomic trends.

Three other Citadel funds, whose returns are tied to the firm’s market-making business, have climbed about 40 percent this year. Those funds manage about $3 billion.

Even with Citadel’s drop in assets, the firm has not breached the terms of its contracts with lenders, one of the people said.

To contact the reporters on this story: Saijel Kishan in New York at skishan@bloomberg.net; Katherine Burton in New York at kburton@bloomberg.net