Citadel May Lower Its Management Fees as Hedge-Fund Industry Seeks Clients
Citadel Said to Consider Fee Cuts
Tim Boyle/Bloomberg
Citadel lost 55 percent of assets as markets tumbled in 2008, and when investors sought to take out $1.2 billion the firm suspended redemptions before restoring them in late 2009.
Citadel lost 55 percent of assets as markets tumbled in 2008, and when investors sought to take out $1.2 billion the firm suspended redemptions before restoring them in late 2009. Photographer: Tim Boyle/Bloomberg
Citadel LLC is considering cutting fees on its two main funds as it attempts to attract clients during the worst climate for raising money in two decades, said two people with knowledge of the firm’s plans.
The Kensington and Wellington hedge funds at Chicago-based Citadel, the $11.1 billion firm founded by Ken Griffin, are among a handful that pass along all expenses to clients rather than charging the industry-standard 2 percent annual management fee. Expenses at the firm have reached as much as 8 percent of assets, and typically range from 4 percent to 6 percent.
Citadel lost 55 percent of assets as markets tumbled in 2008, and when investors sought to take out $1.2 billion the firm suspended redemptions before restoring them in late 2009. Even after last year’s 62 percent return and this year’s 4 percent gain, the funds would still need to climb about 30 percent to make clients whole. Assets fell from $13.5 billion a year ago as money was returned to customers.
“Investors will never forget how Citadel acted in 2008,” Brad Alford, who runs Alpha Capital Management LLC in Atlanta, said in an interview. His firm farms out money to hedge funds and is not a Citadel investor.
Citadel also may make it easier for clients to withdraw money from their funds, said the people, who asked not to be named because the information isn’t public. Some investors in the two funds can take out money quarterly, subject to restrictions. Other clients are subject to longer lock-ups.
Devon Spurgeon, a spokeswoman for the firm, declined to comment on the possible changes.
The industry saw about $286 billion in net withdrawals in 2008 and 2009, according to Chicago-based Hedge Fund Research Inc. Funds collected a net $23.3 billion in the first six months of this year, data from Hedge Fund Research show.
Barring a record windfall of new cash in the second half, the industry will endure its first three-year period of net redemptions since the firm started tracking trends in 1990.
To contact the reporters on this story: Saijel Kishan in New York at skishan@bloomberg.net; Katherine Burton in New York at kburton@bloomberg.net
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