Citadel's Griffin Urges Breakup of Big Banks, Echoing TrumpBy , , and
Hedge fund manager says industry is going through retrenchment
His firm’s flagship funds returned about 3.5% this year
Ken Griffin, chief executive officer of Citadel, said he would be “really excited” to see a break up of big banks to increase competition and boost the economy.
“Would I argue to break these banks into many, many small banks? No,” Griffin said in an interview Monday with Bloomberg TV. “But should we think about separating the investment banks from the commercial banks, a new Glass-Steagall? I would be really excited to see that. I think it would be great for the economy."”
Griffin, 48, echoed comments from President Donald Trump earlier today about bringing back a version of Glass-Steagall, the law which had separated investment banking from retail. Griffin spoke from the annual Milken Institute Global Conference in Beverly Hills, California.
Griffin, whose firm manages $27 billion, also said the hedge fund industry is going through a shake-up, forcing hedge funds to close, as markets have become more efficient.
“We’re going through a period of retrenchment as the dynamics of the playing field are changing,” he told Bloomberg. “It’s harder to create alpha today, there’s more competition, there’s a lot of very sharp people trying to find opportunities in the market place. This is causing some of the second-tier players to fall by the wayside."
Citadel gained about 0.9 percent in its flagship Kensington and Wellington hedge funds in April, according to a person familiar with the matter. The gains brought performance for the year through last month to about 3.5 percent from 2.6 percent in the first quarter, said the person.
The hedge fund manager, who started trading from his dorm room at Harvard University, founded Citadel in 1990. He said the firm uses machine learning, a form of artificial intelligence, as part of its tool kit. He said the technology is “very powerful” when working with a large data set and patterns that persist over time, and “worthless” for analyzing one-off events like the upcoming election in France.
Griffin stressed that banks are burdened with excessive compliance regulations and he applauds the effort of the Trump administration to reduce the rules. At the conference he said regulators should create incentives for private-equity and venture capital firms to get into the banking sector. Griffin in 2011 ended a three-year effort to build his own investment bank.
Griffin views banks such as JPMorgan Chase & Co. and Morgan Stanley as competitors with his market-making unit, Citadel Securities. It sells to buyers and buys from sellers in stock, derivative and U.S. Treasury markets. A change in how those banks are organized and operate could create more competition.
“That’s sort of a mixed blessing,” he told Bloomberg about the possible impact on his firm. “We’d have much more vigorous competitors at these newly created investment banks but I think that’s good for America."
The hedge fund manager said the trend in investing toward passive products will provide an opportunity for active managers that stand after the shakeout.
“The money that’s in passive structures obviously is not pursuing alpha in the same way,” he said. “That should make the markets a little less efficient, which should create a larger profit pool for those who remain. So we’re going to find a new equilibrium in the months and years to come."
— With assistance by Matthew Leising