Morning Coffee: Tactics of the new high performers at hedge fund Citadel. UBS makes more pre-bonus cuts
Congratulations to Citadel, which is not only your ideal hedge fund to work for, but has won the“hedge fund of the year” award from Risk magazine. And congratulations to Citadel's Chief Risk Officer, Joanna Welsh, who has done a lot of the heavy lifting for them this year. (Literally as well as figuratively – she was once a powerlifter in her spare time).
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The title of CRO is almost a misnomer in the context of a big multistrategy firm like Citadel, because the job of managing the aggregate risks taken by the different portfolio managers and making sure that they add up to a strong overall risk-adjusted return is pretty much the whole name of the game – it involves a lot of responsibilities which might just as easily fall within the scope of the Chief Investment Officer at another firm. This year’s performance seems to have been particularly well managed in that regard – according to Welsh, there are some years when they have one particular “tall tree” (AKA the commodities team run by Sebastian Barrack) driving the overall returns, but this year the whole forest grew finely.
Within that forest, though, one of the leafier specimens was Navneet Arora’s Global Quantitative Strategies division. Part of the reason for that is that Citadel seem to have got quite a lot better at hiding their intentions from predatory algorithms. So-called “high frequency” traders are now, apparently, willing to hold onto positions for much longer (minutes rather than milliseconds), in order to profit from the predictable price effect of a big fund like Citadel piling into or out of a position. That means that, as Arora says you can’t just “make good predictions, do your risk management and
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