Citadel Handing Back $7 Billion In Profits To Investors After 15% Return In 2023

2023 was another year of underperformance for most hedge funds (who have barely been able to eek out mid-single digit gains according to Goldman)...

... but not for the "pod" master of them all, Citadel, which according to the WSJ, is planning to give its investors $7 billion in profits it earned in its flagship multi-strat Wellington fund, which returned an impressive 15% in the year through November, a year in which brutal momentum whiplash and soaring rates challenged most hedge-fund managers.

By comparison, the average hedge fund gained 4.35% through November according to HFR. However, once again everyone - Citadel included - is underperforming the S&P 500, which rose 20.8% including dividends through November, for the 6th year running.

Citadel - and other large hedge-fund firms - regularly hand back profits to clients to prevent their funds from growing larger than their managers can invest. Since 2018, Citadel has returned about $25 billion in profits to investors, WSJ sources noted.

After handing back capital in the coming weeks, Citadel expects to start 2024 with about $58 billion in assets under management. It is unclear, however, what that means for the firm's Regulatory assets under management which according to its latest Form ADV totaled a record $339 billion (much of which levered funds are used in such anathema transactions as basis trades).

Many other hedge funds, including ones run by high-profile managers such as Dan Loeb and Jim Chanos, have struggled in a year that included a shifting outlook for inflation and job growth, a regional banking crisis and a run-up in the shares of big tech companies.

Investors in multimanager "pod" hedge funds such as Citadel, like the model because it is centered on "steady" production, and PE like lockups, and not on swinging for the fences. The long/short funds typically balance bets that some stocks will rise with bets that others will fall, while also reducing overall exposure to rising stocks, weighing on performance when markets are rallying, like this year. A Barclays index of 42 multimanager platforms posted annualized returns of 8.1% over the last five years, 2% points better than the rest of the industry.