Ken Griffin's Citadel Portfolio: Hedge Fund 13F Filing ~ market folly

Wednesday, September 9, 2009

Ken Griffin's Citadel Portfolio: Hedge Fund 13F Filing

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up is Ken Griffin's Citadel Investment Group. Ken got his start trading options from his dorm room at Harvard his freshman year. He then launched a convertible bond arbitrage fund his sophomore year and by his senior year, he had $1 million from investors invested in that strategy. Since then, Citadel has seen average annual returns of around 20%. The year of 2008 was a difficult one for them though, as their flagship Wellington and Kensington funds were down big. In fact, they were among the top 10 hedge fund asset losers. Since they would not be recouping performance fees from those funds for a while it seemed, they did what any sensible hedge fund manager would do: start new funds where they can collect the fee again. This is an endless boom bust cycle we've seen in hedge fund land. If you fail, then just come back with a new entity and you're good to go.

Some interesting facts: Citadel is responsible for almost 30% of US equity options volume and 8% of NYSE and Nasdaq volume. Also, Ken Griffin graces Forbes' billionaire list for his endeavors with Citadel. We also wanted to point out that in addition to tracking Citadel's US positions, we can track their positions taken on the London Stock Exchange. Recently, Citadel revealed a stake in Songbird Estates via the contract for difference (CFD) market.

Before we get to their portfolio holdings, we want to insert a cautionary note. Tracking Citadel via 13F isn't particularly useful due to the complex nature of their portfolio. We've elaborated on this issue at the end of the article. But for now, just take the holdings below with a grain of salt. The following were Citadel's long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated in the last quarter):
nothing notable within the top 50 positions in their portfolio

Some Increased Positions (A few positions they already owned but added shares to)
E*Trade Financial (ETFC): Increased by 979.6% (note that this activity is as of June 30th. Since then, there have been developments with this position and we'll update that in a separate post).
Apple (AAPL): Increased by 254.9%
Bank of America (BAC) Puts: Increased by 223.7%
Google (GOOG) Calls: Increased by 106.3%
Freeport McMoran C&G 5.5% (FCXGL) Puts: Increased by 83.5%
Walmart (WMT) Calls: Increased by 59.2%
Microsoft (MSFT) Puts: Increased by 32.3%
Conoco Phillips (COP) Puts: Increased by 28.5%
Illumina Bond: Increased by 27%
JPMorgan Chase (JPM) Puts: Increased by 24.5%
Research in Motion (RIMM) Puts: Increased by 22.9%

Some Reduced Positions (Some positions they sold some shares of)
CME Group (CME) Calls: Reduced by 98.8%
Microsoft (MSFT) Calls: Reduced by 50.3%
International Business Machines (IBM) Calls: Reduced by 40.9%
Hologic Bonds: Reduced by 31.2%
Goldman Sachs (GS) Calls: Reduced by 30.7%
Goldman Sachs (GS) Puts: Reduced by 25.6%
Registere Bond: Reduced by 23.3%
International Business Machines (IBM) Puts: Reduced by 21.5%
Wells Fargo (WFC) Calls: Reduced by 20.5%

Removed Positions (Positions they sold out of completely)
Ford Motor Preferred A Bond, Alexion Pharma Bond, Fisher Science Bond, Sybase Bond, Comcast HLD Zones1 (CCZ), Broadcom (BRCM), Lions Gate Bond, Mentor Graphics Bond, Kendle International Bond, St. Mary Land & Exploration Bond, Alliant Techsystems Bond, Cadence Design Bond, Genesco Preferred Bond, State Street (STT), Actuat Bond, Albany International Bond, Ferro Bond, Covidien (COV), Great Atlantic & Pacific Tea Bonds, Texas Instruments (TXN), Tenaris (TS), Millipore Bond, Griffon Corp Bond, Resmed (RMD), Chesapeake Energy Bond, Airtran Bond, Agco Bond, and Hornbeck Offshore Bond.

Top 15 Holdings by percentage of assets reported on 13F filing *(see note below regarding calculations)

  1. Google (GOOG) Calls: 1.49%
  2. Cephalon (CEPH) Bond: 1.27%
  3. Amgen (AMGN) Bond: 0.97%
  4. Apple (AAPL) Puts: 0.93%
  5. Apple (AAPL) Calls: 0.91%
  6. Google (GOOG) Puts: 0.91%
  7. EMC (EMC) Bonds: 0.74%
  8. Goldman Sachs (GS) Puts: 0.74%
  9. Exxon Mobil (XOM) Calls: 0.73%
  10. Medtronic (MDT) Bonds: 0.73%
  11. Symantec (SYMC) Bonds: 0.69%
  12. Gilead Sciences (GILD) Bonds: 0.69%
  13. PG&E (PCG) Bonds: 0.68%
  14. Exxon Mobil (XOM) Puts: 0.64%
  15. JPMorgan Chase (JPM) Calls: 0.55%

The main thing with Citadel's portfolio is to take it all with a grain of salt. They hold a ton of positions and so we only tried to cover the biggest moves they made. More than anything, this look at their 13F is for novelty purposes as we can't really glean a whole lot from it. Many readers just like to see what the top positions are at Ken Griffin's firm and we're happy to oblige. But, for tracking or cloning purposes, it's not all that useful. Why? Since Citadel has the vast majority of their holdings in options markets, it makes it hard to decipher their true position in any given company. For instance, they can be holding both puts and calls on any given stock at a wide variety of strikes and expirations. Since they aren't required to disclose that information, we don't truly know the extent of their holdings. Additionally, they could be selling options against their position which are not required to be reported on a 13F filing. So, we're also missing out on seeing a big chunk of their portfolio to begin with.

Lastly, you'll also notice that each of Citadel's positions only represents a tiny amount of their overall level of reported assets on the 13F. Their largest position is a mere 1.49% of reported assets. What's more is that this percentage becomes even smaller if it were represented as a portion of assets under management rather than just 13F assets. (This goes back to the fact that 13F's only report longs... their overall AUM is much larger than the $33 billion reported on the filing. As such, each position becomes a smaller portion of their overall total). The main point here is that we can't truly see their directional bets so it's best to just glance at their portfolio, go "hmm" and move on.

Besides the typical options positions, we do notice a decent amount of bonds in Citadel's portfolio, so take that for what it's worth, with Cephalon and Amgen being their largest bond positions. The other interesting thing about their portfolio is the fact that they didn't really add any new positions. They were basically just adjusting the sizes of current positions. In terms of sales though, they sold completely out of a bevy of names, as outlined above.

Due to the complexities of Citadel's portfolio and the fact that it honestly isn't very useful to track them via 13F, we are most likely going to remove them from our hedge fund portfolio tracking series. HOWEVER, if numerous readers comment on this post or email us telling us they still want they updates, we will be happy to oblige. One thought we had was to simply update only the very major position changes we see going forwards. Let us know your thoughts in this regard. In our opinion, tracking Citadel via 13F is about as useless as tracking Jim Simons' Rentec via 13F. We might just only report on Citadel's bond positions from here on out, we'll see.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $33.8 billion this quarter compared to $28.3 billion last quarter, so quite a noticeable increase in assets invested on the long side. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund, they would obviously be lower since you would divide position sizes by their total assets under management (a larger number than the one reported on the 13F).

This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, Thomas Steyer's Farallon Capital, and Boone Pickens' BP Capital Management. Check back each day as we cover prominent hedge fund portfolios.

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