Kenneth C. Griffin’s speech from the 8th annual CNBC and Institutional Investor run Delivering Alpha Conference. – See more of our coverage here.
[00:00:00] Male 1: Thank you. We have a lot to talk about and I want to talk about the way we’re thinking about the markets, I want to talk about the way we’re thinking about policy and intuition of the markets. I really want to talk to you about where you think the financial services business in the world is going. Just to give everybody an idea first of all we should say your performance here has been spectacular in that it has probably been the highest, if not the highest one of the highest performing hedge funds in the space. Citadel Securities it’s now one out of every five stocks is traded through you every single day?
[00:00:44] Male 2: Yes, that’s right.
[00:00:46] Male 1: That’s a remarkable thing and a good way to start the conversation even the conversations that we’ve had thus far this morning. These days when you wake up in the morning and you see headlines about trade or you see headlines about President Trump in Helsinki talking about it, or you see headlines from Jerome Calville about interest rates. When you wake up and you get either on the phone with your team or you’re sitting around in an office with them what are you telling them or thinking about first?
[00:01:18] Male 2: So it’s really important to understand that we have about 600 investment projects at Citadel. We try to push decision making down to the most junior person who can comfortably make a good decision. So the minute that headline hits the tape somebody has already decided how they are going to react to the new that has been anticipated or they respond immediately to what’s playing out before we ever have a group call.
I think it’s really important to understand it’s how we develop talent, it’s a bit driver of our large success because there’s no bureaucracy or decision making process. It’s very quick, it’s very reactive on the news and it’s good judgments made by the really talented people on our team.
So what I’m working on with my senior leadership team is what are the big risks that we face as a firm? For example there was a material setback in European Union just a few weeks ago with the drama in Italy. We’ve been very focused on what happens if the EU hits a major speedbump and Italy in a year may be much more than a speed bump, it could be catastrophic. So my senior team is focused on the big catastrophic risk that we face in the portfolio and how to manage those risks.
[00:02:38] Male 1: Strategically take the EU right now how do you handicap the situation you’ve just laid out?
[00:02:42] Male 2: So I think that the European Union is a huge issue. Italy is heading towards a set of policies that would increase the deficit in direct contradiction to the EU’s mandate of fiscal discipline. It’s unclear to me as Merkel’s power wanes how this is going to be done. She has been such a tremendous leader of the EU vision that with her having to deal with issues on immigration and using her political capital on immigration issues. Her distraction or entanglement on those issues is going to take Germany away from the table to grapple with Italy’s willingness to engage in a set of monetary fiscal policies that is irresponsible.
[00:03:26] Male 1: So walk through the downsides then. What happens and what are you doing about it?
[00:03:30] Male 2: So for us we very carefully control our exposure to Italy and southern Europe, that’s what we think about how much exposure do we have in Italy directly and then not have [inaudible 00:03:40] in Europe. How to maintain our positions in the most liquid assets so we can navigate quickly and change the market positions.
How to reduce the amount open [inaudible 00:03:53] that we have so we don’t want a complex derivatives portfolio in an environment where Europe is just unstable. So we’re thinking about counterparty risk and complexity of the portfolio without reducing our exposures to southern peripheral Europe maintaining those pastures while these events unfold.
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