Citadel beats markets with big year

Ken Griffin
David A. Grogan | CNBC
Ken Griffin

In a year where many hedge funds posted unimpressive returns, Citadel, the Chicago money-management giant known for its swift movement and out-of-stock positions, generated more than 23 percent returns in its equity hedge fund and almost 18 percent in its multi-strategy flagship funds, Kensington and Wellington, according to someone who reviewed the numbers.

Citadel Tactical Trading, a third fund that historically blended high-frequency trading with more traditional long-short stock investing styles, returned more than 26 percent, the person added. (Citadel removed the high-frequency trading component from the Tactical fund in April 2014.) The figures were being shared with Citadel's investors on Monday night.

The results don't amount to a banner year for Citadel, whose Tactical Trading book in particular has seen better annual returns in the past, but they are notable at a time when the average hedge fund has generated far poorer results. The HFR composite index, which tracks a large basket of hedge funds, returned just 3.6 percent for the year 2014, for instance, even as the S&P 500 index was up 11.4 percent.

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As individual hedge-fund performance numbers trickle in throughout January, the industry's high fees and light regulation – characteristics that seem less forgivable to some investors at a time of lackluster profits – are in question.

Major players like Paulson & Co., the New York hedge fund that employs numerous different investing strategies, and the credit-focused fund Saba Capital experienced bad runs in some of their key funds. Paulson's leveraged umbrella fund, Advantage Plus, fell 36 percent, according to a recent Bloomberg report, and Saba's flagship fund was down nearly 10 percent as of late November, according to an HSBC report and someone familiar with the matter.

At the same time, some equally prominent players – notably the activist Bill Ackman's Pershing Square Capital and Point72, the family office run by Steve Cohen – were up markedly. Pershing Square returned 40 percent last year, according to public reports, and a person familiar with the results has said that Point72 made gross profits of $3 billion for 2014 thanks to returns of more than 10 percent.

Point72's forerunner firm, SAC Capital, was long considered an arch-rival to Citadel before it returned its public investments and modified its structure last year in response to an insider-trading settlement.