War In Europe. The China-Russia Alliance. De-dollarization. How $47 billion Citadel is making the best out of the worst of times.
is staring pensively out a wall of windows on the tenth floor of a Midtown Manhattan office building, one of three locations in New York City occupied by his $47 billion Chicago-based hedge fund, Citadel. It’s early March. Vladimir Putin’s mechanized assault on Ukraine has stalled; he’s now making veiled threats about nuclear strikes. From Griffin’s vantage point there’s no mushroom cloud on the horizon, but the prospect is deeply worrying to the financier.
But that’s short-term thinking. Longer term, Griffin sees a flock of black swans looming. He predicts that the severity and character of the sanctions the West has imposed on Russia will have a long-lasting impact on the dollar-based global financial system. The unprecedented moves by Western powers to shut off Russia’s access to capital markets heralds the weaponization of the dollar, he says.
Though it collects a fraction of a penny per share on each trade, Citadel Securities brought in $7 billion in revenue in 2021, and for the first time Griffin agreed to share part of his empire with outsiders, selling a 5% stake to two blue-chip venture capital firms, Sequoia and Paradigm. The investment valued the brokerage at $22 billion, increasing Griffin’s net worth by $5 billion in the process.
It was 1987, he was a freshman at Harvard and he had read an article casting doubt on a high-flying new company called Home Shopping Network. He bought put options, betting that the stock would fall, and made a few thousand after it collapsed. He later installed a satellite dish on the roof of his dorm so he could pipe real-time quotes directly into his IBM PC.
Over the years, he has made opportunistic acquisitions. In 2002 he picked up pieces of Enron’s energy trading arm, and four years later he snapped up Amaranth Advisors and Sowood Capital after they suffered devastating trading losses. It hasn’t all been a smooth ride, however. The 2008 financial crisis hit Citadel’s flagship fund with 50% losses, bringing the firm dangerously close to failing. He called his move to halt redemptions “one of the most difficult decisions I ever made.
In February 2021 Griffin was hauled before Congress to testify in hearings concerning a halt in trading in GameStop, the poster child for the “meme stock” frenzy roiling Wall Street at the time. An army of unsophisticated traders, mostly from Robinhood, were bidding the past-its-prime video game retailer to unprecedented heights and, in the process, catching some pros with their pants down.
The war in Ukraine has pushed aside pandemic and meme stock woes. Like any great trader, Griffin is focused on domino effects. In other words, he’s interested in how the reaction to one disaster reduces the number of good options available for dealing with the next one. He bemoans America’s economic response to the pandemic—essentially flooding the zone with $5 trillion in federal stimulus spending.
“Putin refers to it as an act of war,” he says. “Our nation has a huge debt to finance. And if we see key buyers around the world back away from owning Treasuries and other dollar assets, we will pay a much higher cost on that debt for years to come. It will take away from our ability to provide a social safety net, our ability to invest in research and development and to invest in education or infrastructure.
Griffin points out that “commodities typically have become dramatically cheaper over the course of history as we have found solutions to either secure them at a lower price or find a lower-cost solution.”