A letter from Citadel Founder & CEO Ken Griffin to investors attributes the firm’s ongoing success to three core principles: our unparalleled focus and discipline in extending our competitive advantages, our belief in the power of teamwork and collaboration, and our aspiration to create the most formidable team in the history of hedge funds. The letter also outlines Ken’s outlook for 2024, including views on the challenging medium-term economic landscape. Read the letter below.
April 1, 2024
Dear Investor,
2023 was a successful year for Citadel.
Last year’s performance was driven by three core principles: our unparalleled focus and discipline in extending our competitive advantages, our belief in the power of teamwork and collaboration, and our aspiration to create the most formidable team in the history of hedge funds.
As we embark on a new year, I want to share my thoughts on these pillars of our success and their ongoing contribution to our performance.
Extending Our Competitive Advantage
A competitive advantage is a unique attribute or set of attributes that enables a company to outperform its rivals and establish a strong position in the market. Applying this concept to the art of investing has been a guiding principle at Citadel since our earliest days.
In every investment strategy, we strive to create as many competitive advantages as possible over other market participants. These advantages can range from advanced pricing analytics to risk management capabilities to systems that enhance our trade execution. We harness our resources, including elite quantitative researchers and gifted software engineers, to confront challenges and grasp opportunities that we believe will yield the most substantial competitive advantages across our investment strategies.
We aspire to never be complacent. Our leadership team is committed to promoting an ethos of relentless evolution, constantly pursuing significant improvements and nurturing a culture of ongoing learning and innovation. For instance, after more than three decades of research and development, we continue to uncover and apply new insights into our convertible bond pricing analytics. Citadel’s culture of problem-solving, continuous learning, and knowledge creation attracts some of the brightest minds from a wide array of professions to our team.
Achieving Success as a Team
We firmly believe that our success is driven by teamwork and collaboration. We unapologetically maintain a culture where people work together in our offices around the world – offices that are designed to encourage collaboration and communication. Many of our walls are covered with whiteboards awash in formulas and schematics. Our culture attracts individuals who love to discuss and debate ideas, who have meaningful career aspirations and who want to be part of a winning team. People who enjoy working together to impact the world of finance call Citadel home.
Our engaged culture positions us for continued success. For instance, the robust partnership between our investment and portfolio construction teams propels us toward the optimal frontier in capital allocation. During market stress, the collective judgment of our business leaders, risk managers, and portfolio managers enables us to capitalize on market opportunities when others, who depend on simplistic stop-loss approaches, cannot. The remarkable achievements of our portfolio managers are a testament to the constructive and empowering culture at Citadel. The real synergies created by our teamwork and collaborative culture make us significantly more successful as a collective than as individuals.
Assembling the Premier Team in Hedge Fund History
We take pride in having built one of the most formidable teams in hedge fund history. Our ability to recruit experienced professionals to Citadel is unparalleled. Likewise, for decades, we have enjoyed tremendous success attracting gifted graduates from the premier colleges and universities. This year, for example, we received over 100,000 applications from undergraduate and graduate students for positions in our full-time and internship programs within the Citadel family. We will select a small fraction of one percent of these incredibly talented applicants, maintaining the exceptionally high standards we set for talent.
Our talent development strategy revolves around a player-coach model. We offer personalized mentorship and development, which is core to our value proposition for emerging talent. Our team members work with and learn from some of the industry’s most influential and respected leaders. Building a career at Citadel is an exciting and compelling journey, supported by world-class resources that foster growth and excellence.
Our unwavering commitment to meritocracy is universally acknowledged and respected. Everyone, regardless of their position, can contribute ideas, impact our results, and advance based on their achievements and ambitions. Career growth and acceleration are determined by skills and contributions, not by titles or tenure. Many of our most senior leaders began their careers with us, demonstrating our success in developing and promoting talent.
The strength of our team is the bedrock of our success. We are dedicated to the continuous strengthening of Citadel’s most vital asset: our people.
2024 Outlook
2023 was a tumultuous year for investors and central bankers around the world. In the United States, for example, the central bank fought against inflation, while investors navigated erratic data that alternated between signaling higher inflation, a potential soft landing, or a recession.
As we look to the future, we anticipate a medium-term economic landscape that will remain challenging due to both structural and cyclical factors. Focusing on the United States, we expect a more favorable climate for fixed-income markets as inflation eases. Economic growth is likely to be modest, staying below potential in the upcoming quarters, with the central bank persisting in its fight against inflationary pressures. Consumers should benefit from an increase in real income due to declining inflation and continued wage growth. However, as we have cautioned over the past year, the surging U.S. public debt is a growing concern that cannot be overlooked. For example, the Congressional Budget Office estimates that net interest spending will reach 3.1 percent of GDP in 2023, which is a full percentage point higher than the average from 1974-2023. It is irresponsible for the U.S. government to incur a deficit of 6.4 percent when unemployment is hovering around 3.75 percent. We must stop borrowing at the expense of future generations. The Western world urgently needs a significant increase in productivity growth as the burden of rising government debt and entitlement spending strains almost every major economy.
Closing
It is with great honor that we acknowledge our recognition by LCH Investments in their 2023 ranking of Top Money Managers by Net Gains Since Inception. Being hailed as the most profitable hedge fund manager in history is not just a title — it is a reflection of the enduring culture and ethos that we have nurtured over the past three decades.
While we are honored by such recognition, we remain focused on the future. Our investors, ranging from institutions to families, share a common vision of bettering our world. Our investors’ endeavors extend from life-changing medical research to educating the next generation of leaders, assisting their nation in fulfilling retirement commitments, and supporting impactful philanthropic initiatives. At Citadel, we deeply value the trust you place in us to manage your capital. We are committed to continuing our pursuit of excellence, delivering performance that is worthy of the trust you have bestowed upon us.
Sincerely,
Kenneth C. Griffin
