“AHedge Fund Chief Shakes Up the Business” ran the headline over a front-page article in The Wall Road Journal in mid-August that anointed Ken Griffin because the nation’s most profitable hedge fund supervisor. In line with the Journal, the 55-year-old founder and chief government of Citadel took an business lengthy dominated by star merchants like George Soros and David Tepper and as an alternative arrange “scores of groups that semiautonomously handle their very own portfolios.” Such diffuse investing factories are actually “ascendant” in america, accounting for greater than 1 / 4 of hedge-fund jobs and 30 % of the business’s stock-market footprint. “We made extra money than any agency has ever made within the historical past of capital markets,” Griffin instructed reporter Peter Rudegeair. “That is the place folks come once they need to change the world of finance.”

Drawing on conversations with greater than two dozen folks accustomed to Griffin and his fund, the article recited his many superlatives: an estimated web price of $42 billion; $75 million in contributions to conservative candidates and causes within the present election cycle; donations of lots of of hundreds of thousands extra to the Memorial Sloan Kettering Most cancers Middle and Harvard College, his alma mater (together with a $300 million present final yr to its School of Arts and Sciences ); a sprawling actual property portfolio; and the weeks Griffin spends annually “personally reviewing the impression that hundreds of workers have had on the agency.” Rudegeair writes that portfolio managers who in any other case would have opened their very own funds “have more and more accepted gives from Citadel and its friends to run their very own groups inside its partitions.” In 2023, Citadel’s flagship fund notched a return of 15.3 %, trumping such opponents as Millennium and Point72.

There was, nonetheless, an vital reality lacking from the piece. That 15.3 % return on Citadel’s flagship, whereas certainly beating the competitors, badly lagged the S&P 500, which rose 24 % for the yr. Had Citadel’s traders as an alternative positioned their cash in a low-cost index fund monitoring the broad inventory market, they’d have earned way more. A number of readers derisively famous this within the feedback part. “What lunatic invests in a hedge fund?” wrote Anthony P. “These people can’t beat the market and get beat by retirees which have their very own investing golf equipment.”

Questioning concerning the absence of such a big information level, I wrote to Rudegeair, requesting an interview. He wrote again to say that he most popular to let the story communicate for itself.

Left to conjecture, I can solely assume that together with the S&P 500 determine would have diminished Griffin’s glow. The article was accompanied by a colour photograph of Griffin displaying him wanting tanned and triumphant in his workplace in Miami. (Based in Chicago in 1990, Citadel had lengthy been primarily based in that metropolis, however in 2022 it moved to southern Florida due to Griffin’s concern over the extent of violent crime in that metropolis.) The Journal article exemplifies a sure style of Wall Road reporting, during which world-bestriding monetary and company figures are lionized for his or her wealth, acumen, and beneficiant give-backs to society—a species that appears all of the extra jarring at a time when the highest 1 % of Individuals personal as a lot wealth as the underside 90 % and when greater than a 3rd of households say they’d have bother developing with $400 within the occasion of an emergency.

Most individuals studying this text in all probability haven’t heard of Griffin and have little concept of what hedge funds are. They’re swimming pools of cash entrusted by rich folks and establishments to funding managers who promise them alpha—a return superior to that of business benchmarks. There are round 3,800 such funds in america, managing $4.7 trillion. The sector is thought for its swagger, secrecy, egotism, and ostentation. Distinguished practitioners embody Steve Cohen, Ray Dalio, Izzy Englander, David Shaw, and the late Jim Simons. (Others, reminiscent of Invoice Ackman, Carl Icahn, and Paul Singer, belong to a subcategory referred to as hedge-fund activists.) They’re pivotal figures in our new Gilded Age, during which the .01 % have enriched themselves on the expense of wage-earning America and transformed their fortunes into political affect, social standing, and cultural capital. Extra Cash Than God is the apt title of Sebastian Mallaby’s guide about these males—and they’re nearly all males. And Griffin has outpaced all of them. Yearly, Institutional Investor compiles a listing of the highest 25 hedge-fund earners, and in 2022 Griffin positioned first with a staggering $4.1 billion—probably the most within the listing’s 22-year historical past.

In describing him and the business, the Journal article neglected some important particulars. In its telling, Griffin created scores of groups to handle their very own portfolios. Over time, Citadel got here to look “much less like a conventional hedge fund,” with a single supervisor overseeing all investments, “and extra like a nesting doll of mini-hedge funds.” Griffin “opened extra stock-picking items, every composed of separate groups that had been devoted to sure sectors and managed their very own positions.” By 2018, such multimanager funds “had been rising sooner than the remainder of the business and beginning to account for its largest launches.” With the proliferation of “copycat companies” mirroring Citadel’s methods, Griffin “is now centered on sustaining his edge,” tending to even such minor issues as trade-processing errors. “As soon as a agency makes it clear they tolerate complacency wherever,” Griffin noticed, “it’s fairly straightforward for it to unfold all over the place.”

The Journal, nonetheless, failed to notice a essential issue within the agency’s aggressive edge: its expertise. Citadel makes use of superfast computer systems and superior statistical fashions to information its funding methods. Although many hedge funds at the moment function on this means, Griffin was within the forefront, as one other Journal reporter, Scott Patterson, chronicled in his 2010 guide, The Quants. In distinction to Warren Buffett and different old-school traders who picked shares primarily based on their private evaluation of an organization’s development potential and different “fundamentals,” Patterson wrote, Griffin was among the many finest and brightest of a brand new breed of math-whiz technocrats who used a data-driven, algorithmic strategy to detect small fluctuations, worth discrepancies, and rising market developments in a fraction of a second. As buying and selling turned more and more automated, Citadel and different Wall Road companies scooped up mathematicians, physicists, engineers, and information scientists. These technologists have labored carefully with portfolio managers, funding analysts, merchants, and threat managers to develop advanced funding methods in equities, fastened earnings, credit score, and commodities.

As we speak, there’s a gentle move of technologists from Silicon Valley to Wall Road, the place they’ll earn hundreds of thousands and even tens of hundreds of thousands of {dollars} a yr. Citadel employs greater than 250 PhDs in 60 fields starting from statistics and bioinformatics to aeronautics and atmospheric science. By many accounts, nonetheless, Citadel is a grueling place at which to work, due to Griffin’s unforgiving administration model and Darwinian deal with efficiency.

One other ingredient in Citadel’s success is its price construction. Most hedge funds have historically used a “2-and-20” construction, charging the fund’s exterior traders a administration price of two % of all belongings and a efficiency price of 20 % of all earnings. Citadel, against this, costs all of its bills to its traders, together with compensation, lease, analysis, and expertise, amounting to round 7 % of whole belongings. Such sky-high charges allow Citadel to take a position extra in computer systems, programmers, and portfolio managers than most different funds.

Parallel to his hedge fund, Griffin operates a separate market-making division known as Citadel Securities. When an investor locations an order with an funding supervisor like Constancy or a brokerage like Charles Schwab to purchase or promote inventory, these firms ship it to a market-maker like Citadel Securities to execute it. The agency operates banks of computer systems that—positioned on the premises of NASDAQ and different exchanges around the globe—can purchase and promote shares at speeds 100 instances sooner than the blink of an eye fixed, permitting it to get a soar on the competitors. As we speak, Citadel Securities is the biggest such executor of inventory orders within the nation, accounting for a outstanding 35 % of all each day retail trades. The revenue on every transaction is a fraction of a cent, however with Citadel Securities executing greater than $450 billion in trades daily, the combination whole is very large, and Citadel Securities is now a serious supply of Griffin’s wealth.

To be honest, Citadel’s flagship fund through the years has handily outperformed the S&P 500. Since January 1, 2020, its cumulative fee of return has been greater than double that of the S&P. However most hedge funds have fallen woefully in need of that benchmark, and a few pension funds—disenchanted with their returns—have deserted them. Warren Buffett has lengthy criticized hedge funds as a horrible funding. In 2007, he wager {that a} low-fee Vanguard S&P 500 index fund would, over a 10-year interval, outperform a portfolio of hedge funds chosen by an impartial advisory agency. Ultimately, he collected: The index fund elevated by 85 % and the hedge funds by simply 22 %.

As consciousness has unfold which you can’t beat the market, trillions of {dollars} have moved from actively managed funds like hedge funds into passive funds that attempt to mirror the market. But many universities, foundations, and high-net-worth people proceed to pile into hedge funds. In 2023, Harvard positioned a whopping 31 % of its $50-billion-plus endowment in such funds. Its total return for the yr was a paltry 2.9 %—about one-eighth the rise within the S&P 500. Harvard’s common annual return for the ten years by way of June 2023 was 8.6 %, second from the underside of Ivy League universities. But N.P. Narvekar, the top of its endowment committee, continues to tug down greater than $6 million a yr, making him Harvard’s highest-paid worker. Why endowment committees proceed to favor hedge funds regardless of their abysmal efficiency displays the heavy presence on these committees and their advisory boards of executives from hedge funds and personal fairness companies, who dole out enterprise to their Wall Road contacts—a obtrusive type of favoritism that journalists not often discover.

Nor do journalists spend a lot time analyzing the facility of hedge-fund billionaires like Griffin and the distorting and destabilizing impact their wealth has on American society. Within the political sphere, Griffin belongs to a category of financier megadonors who since Residents United—the 2010 Supreme Court docket resolution that struck down many limits on marketing campaign contributions—have flooded the political system with cash. In 2014, when Citadel was nonetheless primarily based in Chicago and Griffin was the richest man in Illinois, he backed the gubernatorial candidacy of his buddy Bruce Rauner, a private-equity government who shared Griffin’s resolutely free-market views and assist for constitution colleges. The $5.5 million he gave Rauner’s marketing campaign helped him eke out a slender victory. As governor, Rauner pushed for deep cuts in social providers and better schooling that made him deeply unpopular, and, regardless of the astounding $20 million that Griffin donated to his 2018 reelection marketing campaign, Rauner was trounced by his Democratic opponent, J.B. Pritzker, who, as a billionaire, was capable of outspend him.

When in 2018 Ron DeSantis ran for governor of Florida, Griffin contributed $5.75 million to his marketing campaign, making him its largest backer. He donated one other $5 million to his 2022 reelection bid, serving to him to outspend his Democratic opponent. Griffin’s money thus performed a key position in electing two conservative governors. Within the present election cycle, he’s the second-largest donor within the nation, with most of his cash going to assist Republican Home and Senate candidates, together with $10 million to again the senatorial bid of Larry Hogan in Maryland. (Griffin backed Nikki Haley through the Republican primaries.) “I’ve by no means seen something prefer it,” a Republican fundraiser instructed the Monetary Occasions about Griffin’s giving. “The quantity of energy he has is unbelievable.”

Griffin’s philanthropic donations are much more colossal. As with many in his bracket, he favors elite establishments and insistently seeks naming rights to assist promote his generosity. In Chicago, one can go to the Griffin Halls of Evolving Planet and Sue the T. Rex on the Discipline Museum; the Renzo Piano–designed Griffin Court docket on the Artwork Institute of Chicago; the Griffin Galleries on the Museum of Up to date Artwork Chicago; and the Kenneth C. Griffin Museum of Science and Business, to which he gave $125 million. In 2017, Griffin gave one other $125 million to the economics division of the College of Chicago, which was renamed the Kenneth C. Griffin Division of Economics. At Harvard, not solely the Graduate Faculty of Arts and Sciences but in addition its monetary assist workplace (to which he gave $150 million) are named after him.

In New York, there’s a Griffin Corridor on the Whitney Museum of American Artwork, a Griffin Constructing on the Museum of Trendy Artwork, a Griffin Theater on the efficiency house The Shed at Hudson Yards, and the Griffin Exploration Atrium on the newly expanded American Museum of Pure Historical past. Citadel’s representatives (who patiently responded to my many questions) made certain I knew concerning the $30 million that Griffin gave final yr to the Nationwide Medal of Honor Museum Basis in Arlington, Texas, to underwrite a management institute, now referred to as the Griffin Institute. Griffin has additionally supported kids’s hospitals, neuroscience analysis and most cancers care, Okay-12 schooling (public, personal, and constitution), and Miami Dade Faculty ($20 million to determine a Griffin Scholarship Fund for low-income college students). Over time, Griffin has contributed $35 million to Success Academy, the controversially strict constitution community that operates practically 50 colleges in New York. With out the assist of ultrarich hedge-fund executives like Griffin, Success and different constitution colleges would have a tough time surviving.

In all, Griffin has given away greater than $2 billion. Most of that cash qualifies for tax deductions, which for somebody in Griffin’s bracket might whole round $600 million in federal taxes alone—cash that’s diverted from the general public treasury. Taxpayers are thus serving to to subsidize his philanthropy with out having any say in the place it goes. (ProPublica discovered that from 2013 to 2018, Griffin paid 29.2 % of his earnings in federal earnings tax—the fourth-highest fee among the many 15 highest income-earners in these years.)

Griffin has additionally spent lavishly on artwork. He’s considered one of a small group of collectors whose outlandish payouts for trophy works have pushed up their costs, serving to to make even our wealthiest museums depending on their whims and goodwill. In 2015, Griffin purchased Willem de Kooning’s Interchange for $300 million and Jackson Pollock’s Quantity 17A for $200 million from fellow multibillionaire David Geffen—the most costly artwork deal ever. These and different Griffin purchases had for years hung within the Artwork Institute of Chicago, however when Griffin determined to maneuver Citadel to Florida, he had the works taken down and moved to the Norton Museum in West Palm Seashore. Yearly, Griffin makes the ARTnews listing of the highest 200 collectors, which confers status and acclaim in a phenomenon referred to as art-washing.

In no space has Griffin spent extra obsessively than actual property. Simply to listing the properties in his portfolio is to offer a snapshot of a society that appears profoundly unwell. They embody a luxurious penthouse residence in Chicago, for which he paid $58.75 million in 2017 (probably the most ever for a residence in that metropolis); an oceanfront property on the 4 Seasons Hualalai resort in Hawaii; a pair of adjoining properties in Aspen, Colorado, with a mixed whole of 12 bedrooms; two penthouse residences in a luxurious condominium in Miami Seashore; a set of heaps in Palm Seashore for which he paid $350 million and on which he plans to construct a grand property; a seven-acre oceanfront property in Southampton that he purchased from designer Calvin Klein for $84.45 million; a Georgian mansion close to Buckingham Palace in London that price $122 million; and a three-floor penthouse at 220 Central Park South in New York for which he paid $238 million—nonetheless the very best worth paid for a residence in america. When requested about this, Citadel (as a part of an eight-page reality sheet) supplied this assertion: “Ken has principally bought considered one of a form, iconic properties and oceanfront heaps that are inherently of restricted provide, and due to this fact prone to be sustainably valued. A kind of Palm Seashore properties has a home in progress for his mom.”

Unhappy to say, Griffin will not be an remoted case. Hedge-fund and private-equity billionaires usually personal 4, 5, six, or much more premier residences in prime locales in a stomach-turning case of aggressive consumption. At a time when an estimated 650,000 Individuals are homeless and the nation faces a housing shortfall of a number of million items, such gluttony appears a superb commercial for a strong wealth tax.

The dimensions of Griffin’s fortune and the affect it brings raises a broader challenge that enterprise reporters not often broach: How a lot social utility do hedge funds have? The proof suggests they’ve little or no. The schools and retirement funds which have poured billions into these funds have usually gotten a lot poorer returns than they may have by shunning them. Throughout the latest wave of protests on school campuses, hedge-fund executives (together with their private-equity colleagues) used their energy as main donors to oust Ivy League presidents. (In January, Griffin stated that he was pausing his presents to Harvard, calling its college students “whiny snowflakes” and chastising elite universities typically for being “misplaced within the wilderness of microaggressions” and pursuing “a DEI agenda that has no actual endgame.”) With their superfast buying and selling, hedge funds have fed the short-term mindset that has so eroded the long-term productiveness and prosperity of American firms. And all these extremely educated engineers, mathematicians, and physicists which might be serving to companies like Citadel reap billions might be extra productively employed growing new remedies for persistent illnesses, enhancing the nation’s transportation system, and making a extra environment friendly vitality grid.

Above all, these funds have widened the gulf between the ultrarich and the remainder of us. A number of years in the past, The Washington Publish calculated that the highest 25 prime hedge-fund earners collectively made greater than the nation’s 158,000 kindergarten academics mixed. Not for the reason that days of the robber barons has such a small group managed such huge wealth, and the SEC ought to appoint a panel to discover methods to constrict these funds so that individuals like Griffin have much less earnings than God. Possibly then journalists would begin paying extra consideration to them.