Griffin Says Citadel To Compete With Goldman Sachs; Remains Quiet About E*Trade

Last Updated Sep 16, 2009 2:34 PM EDT


Citadel chief Ken Griffin is starting a full-scale investment bank, to compete alongside Goldman Sachs and Morgan Stanley, according to an interview the hedge fund manager gave to Bloomberg recently, which was published yesterday.

That won't be surprising to readers of BNET Finance, who first heard the story here on Friday when I wrote that the fund's Omnium subsidiary and E*Trade holdings effectively gave it a full-scale back office (see story here).

After a tumultuous year in 2008, Griffin is launching three new hedge funds, while he's reducing the size of his two largest flagship funds (Kensington and Wellington). He expects to meet the entire $1 billion amount of redemptions from investors this year, after the two funds gained some 52 percent through September 1 in the market upturn.

The shift in strategic focus is a good idea from a growth perspective, but it's going to be interesting to see how exactly it plays out. According to sources that I've spoken with, demand from competing hedge funds for Citadel's new back office functions has so far been tepid, since asset managers are still uncertain about the strength of the Chinese Walls that lie between the firm's trading and transactional divisions.

What's notable too in the Bloomberg interview is how quiet Griffin is on the subject of E*Trade. Since the broker is one of the few publically-listed companies in which Citadel holds a full-blown operating position, it makes for a sensitive topic in terms of E*Trade's share price.

Griffin's silence on this subject and candidness about having employed 70 people to run a new investment bank for him certainly implies a much more central operating role for the online broker than many investors may currently realize.

Building on E*Trade's facilities would, after all, be a great way to reassure competing money managers that the walls between trading and back office platforms were well away from one another. In fact, they would then be in completely separate cities.

  • Daniel Harrison

    Daniel M. Harrison is a business journalist who has written for publications such as The Wall Street Journal, Dow Jones Newswires, and Forbes.com.

    In 2007, Harrison initiated Asian market coverage for TheStreet.com, reporting from New York and Hong Kong. He also served for a while as Opening Bell Editor at the financial blog Dealbreaker.com. Harrison is the publisher, editor and writer of The Global Perspective, and you can follow him on Twitter at Twitter.com/bizjourno.