This is partly due to erratic swings triggered by geopolitical turmoil, making trades hard to stick to
[NEW YORK] Ken Griffin’s Citadel is on track for its worst annual return since 2018 after wagers on natural gas – previously a major driver of the hedge fund’s profits – fizzled.
The flagship fund gained 9.3 per cent till Dec 18, said a person familiar with the results.
It made money in stocks, fixed income, credit and quantitative strategies, and even eked out a profit from commodities, including natural gas, after clawing back from losses earlier in the year.
A representative for Citadel declined to comment.
Even so, with less than two weeks of trading left, this year could end up being just the sixth year since Citadel’s 1990 inception that returned less than 10 per cent, underscoring how much the firm has depended on commodities trading to supercharge returns in recent years.
With US$72 billion of assets, Citadel has grown into a behemoth in commodities markets since Sebastian Barrack joined to lead the business in 2017.
Natural gas quickly became a big contributor to the firm’s success, with Citadel among the first hedge funds to build a merchant trading arm, involved in transporting and storing the fossil fuel in North America.
It is a stark change for a firm that made US$8 billion – about half of its profits – in commodities in 2022, after Russia’s invasion of Ukraine triggered a global energy crisis and record volatility, especially in natural gas.
Citadel earned about US$4 billion from commodities in each of the following two years, again roughly half its total gains.
Citadel is not alone in hitting an energy-trading rough patch.
Big oil companies, merchant traders and other hedge funds have all struggled to profit, as erratic swings triggered by geopolitical turmoil and US President Donald Trump’s tariffs made it tougher to put on trades and stick with them.
Almost all of Citadel’s multistrategy peers struggled to notch big gains in energy this year, said people familiar with the matter.
Yet these funds had not built up their energy trading apparatus as much as Griffin, so the underperformance did not weigh as much on returns.
Citadel has been bulking up its physical operations to help give it another source of revenue and an information edge. In the US, the hedge fund made a flurry of deals this year, that gave it access to natural gas production in the key Haynesville shale basin.
That region is seen as vital to taking advantage of an anticipated boom in liquefied natural gas exports and demand, given the growing power needs of artificial intelligence data centres.
Griffin’s firm is also positioning itself to capitalize on volatility in power markets.
Earlier this year, it agreed to buy German power-trading company FlexPower, which helps customers – including renewable-energy producers and battery operators – hedge the risk from price swings.
Other big shops, such as Jane Street Group and Qube Research & Technologies, have followed Citadel’s move and are also looking to expand in physical natural gas trading. BLOOMBERG
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