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Net Net: Promoting innovation and managing change

Hedge fund star gives warning for road ahead

Citadel outperforms

Kenneth Griffin, whose Citadel hedge funds manage $24 billion in assets, said in a letter to investors Monday that he is approaching 2015 with "vigilance" in light of tumultuous market circumstances.

"Market conditions remain uncertain," wrote Griffin, founder and CEO of the Chicago-based money manager, in a letter dated Feb. 9. "A half-decade of unprecedented government intervention and monetary stimulus continues to impact the global financial markets."

"We continue to challenge our assumptions [and] assess our portfolio's risk," Griffin added in the letter.

He noted that despite the headwinds, Citadel Wellington, his firm's flagship fund, was up 2.73 percent in January—the reverse image of the , which fell more than 3 percent, and better than the average hedge fund, which was up fractionally, according to figures tracked by market-data provider HFR.

Citadel founder and CEO Kenneth Griffin speaks during a hearing in Washington on July 8, 2014.
Andrew Harrer | Bloomberg | Getty Images

Citadel's performance comes on the heels of a notable 2014, in which the flagship fund was up nearly 18 percent and the company's global equity fund was up more than 23 percent. (A third fund, Citadel Tactical Trading, a long-short equity and statistical arbitrage fund with historical roots in high-frequency trading—a strategy it has now abandoned—was up more than 26 percent.)

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Last year's performance, noted Griffin in the letter, "provides tremendous flexibility for us to be opportunistic in the financial markets, and in the market for talent." He added that Citadel is "constantly recruiting and adding" to the staff.

Of particular focus on the hiring front will be new employees on the equities side, said someone familiar with the process, including analysts and portfolio managers, among other jobs.

Griffin, a relatively low-profile hedge fund manager who has been in the news lately more for his acrimonious divorce proceedings than for his market views, was restrained in his February note compared to some other managers.

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Senior officials at the $25 billion hedge fund Elliott Management, for instance, recently argued that current stock prices around the world "cannot possibly reflect the best analysis of millions of investors" that long-term bond prices were "reductio ad absurdum and beyondum," (italics theirs) and that owning the debt of developed countries today was "quite nutty."