Ken Griffin’s Citadel is one of the biggest hedge funds on earth. But last year, its performance lagged well behind the S&P 500.

From CNBC:

Billionaire investor Ken Griffin’s various hedge fund strategies at Citadel all posted double-digit returns for 2023, but they failed to beat the S&P 500.

Citadel’s multistrategy Wellington fund gained 15.3% last year, according to a person familiar with the returns. The flagship fund had enjoyed a stellar 2022 with a 38% gain, marking its best year on record.

The Miami-based firm’s tactical trading fund gained 14.8% in 2023, while its equities fund, which uses a long/short strategy, returned 11.6%, said the person who spoke anonymously because the performance numbers are private. Citadel’s global fixed income fund returned 10.9% last year, according to the person.

Citadel’s Declining Performance

The S&P 500 trounced every fund Griffin has, posting a 24% gain for the year.

The multistrategy Wellington fund is Citadel’s flagship. Multistrategy funds can invest in stocks, bonds, commodities, or most any other asset. If they can find returns there, it’s fair game.

Citadel has thousands of the smartest people on earth scouring markets to find opportunities. But incredibly, it couldn’t beat a simple ETF.

Even my personal stock portfolio, comprised entirely of index funds, blew away Citadel. And it did so for a few basis points a year in fees.

Compare that to the typical hedge fund, which charges 2% of assets and 20% of investment gains.

This isn’t the first time Citadel has underperformed. The Wellington fund also lagged the market in 2021.

Too Big to Succeed?

So what’s wrong with the hedge fund giant?

Citadel may be a victim of its own success. Citadel’s funds have ballooned over the years.

Despite uneven returns, it has had a few strong years. Those tend to draw in new investors. The firm now has $58 billion under management.

As funds increase in size, returns often drop. It’s simply harder to post big numbers on a huge pot of assets.

I have no doubt that Griffin and his people are great traders. But there are only so many gains out there in markets, no matter how good you are.

Griffin Takes Action

Griffin appears to be taking steps to fix this problem.

Citadel is returning all of the fund’s 2023 profits, $7 billion, to investors. Normally, a hedge fund would hold onto that money and keep investing it.

Griffin may be trying to shrink Citadel back to a more manageable size. This could help the firm get back on track.

As for me, I’m sticking to my index funds. They may be boring, but they never lag the market.

Would you invest in Citadel? Leave a comment and let us know!

More on markets:

Major Hedge Fund Falls 50% — Billions Lost

Tiger Venture Chief Out in Management Shakeup

Hedge Funds Fight to Keep Short Sales Secret

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Photo: Citadel CEO Ken Griffin