SALT 2016: Ken Griffin On Lessons Learned From Early Years

SALT 2016: Ken Griffin On Lessons Learned From Early Years
Ken Griffin

This is part of our SALT 2016 coverage stay tuned for more coming! Ken Griffin

4:40 PM – 5:10 PM
One-on-One with Ken Griffin

Ken Griffin
Founder & Chief Executive Officer, Citadel

ValueWalk’s November 2021 Hedge Fund Update: Rokos Capital’s Worst-Ever Loss

InvestWelcome to our latest issue of issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring hedge fund assets near $4 trillion, hedge funds slash their exposure to the big five tech companies, and Rokos Capital's worst-ever loss. Read More

Anthony Scaramucci (Interviewer)
Founder & Managing Partner, SkyBridge Capital & Host of “Wall Street Week”

Also see SALT 2016: Kyle Bass, Leon Cooperman Diverge On Economy

Also see Sam Zell At SALT 2016: We Are Subsidizing Billionaires Buying Tesla Cars!

Ken Griffin Interview:

Ken Griffin: “There were no real time stock prices when I was in college. I used a service called ComStock that sent you a satellite dish to install. At the time Harvard didn’t allow students to start businesses in their dorm room so I had to have the dorm superintendent sneak around and help me. The world was so different in the late 80’s. The personal computer was just finally becoming a thing. We saw the early adapters of technology having a significant advantage in the 1980’s.”

“If I told you about the early mistakes I made trading, you’d laugh. Fortunately for me the portfolio I had going into 1987…I had a get free out of jail card because I had unexpected gains in the short side. This was a good spot to raise some money. I was 18 years old, I had a friend who was a retail broker, he helped me get $50k from an investor and he helped launch my career. I was 21 and was fortunate enough to have Frank Meyer as an investor. He said “Do not view yourself as married to a strategy. Just build a platform that will attract talented people.” So I tried to build a small firm with a variety of investment strategies and recruited the best people I could find. I learned the importance of delegation – we had a 24/hr day book – and once you have that, you need to learn to trust people and their judgement, and accept that they’ll fail – this was such a great thing for me to learn at a young age. Small businesses are like managing the dinner table with your children. When your business gets bigger, culture becomes much more important. Take Enron – their culture was profoundly broken.”

War for talent: “Every new generation of managers has this new great story about how it’s never been so difficult to find talented people. I’ve done this for 25 years. It’s always hard to recruit good people. They have tier 1 jobs, you need to sell them on why they need to come work for you. It’s a constant. It’ll always be a constant. The best talent is talent that you go out and find. Avoid adverse selection. The talent that knocks on your door is the talent you don’t want. So for example, when Solomon Brothers shut down in 1998, we immediately hired many of their senior people. When Enron shut down, we took their whole quant research effort within hours of their bankruptcy filing. They became members of the Citadel team.”

Fixation on being number one: “Economic rents accrue disproportionately to market leaders. Who is the fifth largest manufacturer of PC’s? Who cares? The world is becoming winner take all. We strive to be a market leader in every segment we’re in. We need the best investment talent. You need information faster than your competition, you need to understand it faster than your competition, and you need to trade faster than everyone – trading is how we monetize our research. It needs to all come together.”

Winning with integrity: “It’s simple. From our earliest days in life, we know that when we walk away playing fairly and win, we feel the best we can possibly feel. When you cheat in some way and win, that’s an empty feeling. Most people want to win on their own merits. They don’t want to cheat themselves by cheating. In 25 years we’ve had very few problems. It has happened. We deal with it quickly and powerfully. People see that we don’t tolerate it.”

2008: “A defining moment for our organization. We lost half of our capital in sixteen weeks. We had never had a double digit drawdown in 20 years. It was like an out of body experience for us as the entire banking system collapsed. We made a fundamental mistake. It all stops on my desk. I’m the CEO. I didn’t think through the risks enough. We retained employees via deferred comp – which was levered. We all lost our golden handcuffs, and you learn – are you going to keep your team or not? There’s an element of shame but it helped make us stronger. One of my largest competitors opened an office in Chicago to fill with people from Citadel. That office is closed. It was never filled. No one walked out the door. It wasn’t about working at Citadel or with Ken Griffin. It was about the people you directly work with. You get to see the mettle of the people around you.”

Policy and market making: “We are one of the users of our own product. We trade 100 million shares of stock per day. We need liquid capital markets that allow us to monetize our research. We are the largest destination for retail order flow in America. When they know they’re being treated fairly, they trade more. We want greater market structure and transparency – because healthy capital markets serves both our interests and America’s.”

Volcker rule: “Banks complain too much about it. The average bid-ask rate of interest rate swaps has come in 50 bps in the last fifteen months. Spreads have tightened. Clearinghouses have commoditized the space. We entered the space with zero market share and now we are a very tough competitor on price. We’ve printed billion dollar trades and it’s not a problem. This brave new world for banks of commoditized trading and tight bid ask spreads – it’s unsettling for them – they want a reversion to the good old days when they didn’t face that price competition.”

Exchanges: “I love seeing competition on exchanges. I don’t want IEX broadcasting stale prices. They have people touting their exchange who regularly use dark pools. What happens to every mid-point crossing facility when IEX is broadcasting stale prices? It’s no longer accurate. Regulators are understanding these issues. IEX is portraying itself as a firm that levels the playing field. But: the fastest firm still wins the trade. It IS a level playing field. Fastest firm wins. But IEX knowingly broadcasts stale prices. And this influences trading on every other venue and is detrimental to the US capital markets. And this one exchange is consistently behind the tape on their prices – and you must still route your order to them first even though they won’t be good for the trade! In fast-moving markets, when you send an order to IEX, it’s going to get rejected, because the prices are stale.”

America: “What makes America so powerful in the global world of commerce is that we are risk takers. The people who came here took a risk – it’s in their DNA and ours. We idolize entrepreneurs – and so I was inspired by Henry Kravis and then my story in turn is probably inspiring people as well.”


Ken Griffin – See the full panel on Periscope here

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