New York (HedgeCo.Net) – The largest hedge fund run by Citadel Investment Group has fallen 30 percent this year stemming from losses tied to convertible bonds. The $10 billion Kensington Global Strategies Fund has been hit hard by the credit crunch, prompting CEO Kennith Griffin to warn investors that returns may be extremely volatile in the next few weeks.
Yesterday, Mr. Griffin sent a letter to investors stating that September was the “single worst month, by far, in the history of Citadel. Our performance reflected extraordinary market conditions that I did not fully anticipate, combined with regulatory changes driven more by populism than policy.”
Rumors of the lagging performance were so strong that Mr. Griffin was forced to set the record straight. He also cited the temporary ban of short selling as one of the reasons for the losses, saying it “created material dislocations across many of our portfolios and disrupted our ability to assume and manage risk.”
Yesterday, Dealbreaker.com had published some of the swirling rumors highlighting Citadel’s problems, fueling fear and speculation in the market. The website eventually took the post down after Citadel expressed their disdain. Dealbreaker wrote: “We removed the citadel post after it was brought to our attention that it was a baseless rumor, and was irresponsible to repeat.”
Dealbreaker had pointed out that the fund uses 4 to 1 leverage, down from 7 to 1 earlier this year. Although they noted that this was high, it is not uncommon for hedge funds to use this much leverage, though some choose to use none. To put it into perspective, Long Term Capital Management and its infamous collapse used 25 to 1 leverage, or for every $1 they had, they borrowed $25.
Citadel was founded in 1990 and manages over $20 billion in assets throughout locations in the United States, Asia, England and Bermuda.
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