Citadel: A Hedge Fund's Savvy Ascent

For hedge fund magnate Kenneth C. Griffin, 2007 was the best year ever. His Citadel Investment Group emerged as one of Wall Street's top opportunists, picking up the pieces of fallen peers on the cheap. With such deft moves, Citadel rang in 30%-plus gains last year, vs. 12% for the average fund.

How could Griffin top that in 2008? An initial public offering of Chicago-based Citadel might do the trick. That would not only cement his reputation as a power player on the Street but also pad his bank account. The 38-year-old Harvard grad, who welcomed his first child in early December, is already estimated to be worth more than $2 billion.

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Citadel Loves a Company in Misery

On Sunday, Mr. Griffin, the 38-year-old founder of big Chicago hedge fund Citadel Investment Group, first learned about deep troubles at hedge fund Sowood Capital. He called a team of 30 traders at their homes and told them to come into the office, trying to figure out a way to profit from the problems. On Monday, Citadel bought up many of Sowood's investments, including bond positions that were rapidly losing value.

For Sowood, it was a way to salvage something from the losing securities. The Boston-based hedge fund has seen its investments drop more than 50% in value in just the past few weeks, in part because it used borrowed money that amplified its losses. It will give the money it now holds, about $1.5 billion, back to its investors as it winds down its two hedge funds. That makes it the most high-profile hedge fund to collapse in the continuing bond-market difficulties.

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Ken Griffin: A hedge fund superstar

On North Michigan Avenue in Chicago, on the Magnificent Mile, sits one of the city's tallest and swankiest residential buildings. The most notable feature of the structure, a seven-year-old art deco-ish number called the Park Tower, is a two-story penthouse with a set of enormous, darkly tinted windows that give the place a Howard Hughes-like mystique. Occasionally passersby shopping at the Armani or Tiffany stores nearby catch a glimpse of the windows and tilt their heads skyward with an "I-wonder-who-lives-there?" stare.

The answer - Kenneth C. Griffin - probably wouldn't make much of an impression, which suits a secretive hedge fund manager like him just fine. In fact, he fits the hedge fund stereotype quite nicely. He's young (38), fantastically rich (worth $2 billion or so), and he collects museum-quality art (he recently spent $80 million to take a Jasper Johns off David Geffen's hands).

He's got the trophy home, obviously, and is married to a very attractive woman, the former Anne Dias. The company he founded and runs, Citadel Investment Group, has around $13 billion in assets and is one of the largest and most powerful funds in the world.

What sets him apart from his fellow nouveau zillionaires is the scale of his ambition. Griffin, say people who know him, doesn't want a reputation merely as a hedge fund legend like Tiger Management's Julian Robertson or SAC Capital's Steve Cohen. What he really seems to want is to build an edifice for the ages: a diversified, large-scale financial institution on the order of Goldman Sachs or Morgan Stanley.

To get there Griffin has launched a flurry of business deals: buying up a mortgage operation here, some distressed assets from another hedge fund there. Last fall Citadel announced plans to sell up to $2 billion in bonds - a first for a hedge fund. All the while, there's steady speculation that Citadel will go public. (Griffin declined to be interviewed for this piece in time to meet our deadline.)

The ambition doesn't stop there. Griffin seems to be going for full-blown, captain-of-industry immortality, the kind achieved by titans who didn't just dot, but shaped, the landscape of business over the past century. As a former Citadel manager put it recently, "Suddenly it seems like Ken wants to be a J.P. Morgan or John D. Rockefeller."

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