Citadel LLC trailed the S&P 500 in 2021, returning 26.3% to the market’s 29%.
Citadel charges as much as 5% or more of the fund’s assets every year, in addition to 20% of all gains. These fees are among the highest of any investment fund.
Why should investors pay such massive fees when the Vanguard S&P 500 Index Fund Admiral fund (which I own) charges a mere 0.04% of assets with no performance fee?
The only possible justification would be returns that are consistently far higher than the market’s. While Citadel’s Wellington fund has outperformed the market in some years, such as 2020, its performance is inconsistent.
Few hedge funds have consistently beat the market. Jim Simon’s Medallion fund has returned 39% a year net of fees annually since 1988, but is closed to new investors.
Perhaps this underperformance is why Citadel is trying to make it harder for investors to withdraw their money.
Unless a fund can consistently beat the market by a wide margin, high fees will make it a losing investment. Hedge funds sound mysterious and awesome, but you may do better with boring old Vanguard!
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