Billionaire Ken Griffin has rebuilt his Citadel, the Chicago hedge fund firm that nearly collapsed during the financial crisis and now manages $26 billion. Now, Griffin is once again thinking about taking his hedge fund firm public.
The Wall Street Journal reported on Tuesday that Citadel is considering conducting an initial public offering in 2016 and Griffin seemed to endorse the idea in an interview.
At 46, Griffin is already on top of the rich hedge fund world, but an IPO has been a goal that has eluded him. Citadel has considered going public for years, particularly before the financial crisis. Even after the financial crisis, Griffin has continued to express an interest in an IPO, a move that now seems more plausible given the firm’s strong track record in recent years.
Still, the world’s stock markets have not been kind to other hedge fund firms that have gone public and hedge fund IPOs have generally turned out badly both for investors in the hedge fund firm’s stock and even in the funds. Publicly-traded hedge funds have a dual loyalty and their efforts to produce returns not only for their shareholders but also for investors in their funds don’t always align. In addition, hedge fund firms struggle to produce the kind of consistent earnings that stock investors often seek.
Billionaire Dan Och took his Och-Ziff Capital Management public at $32 a share. Och-Ziff Capital Management shares not change hands for $11.89. The firm has been successful in raising investor funds and now managed $46.5 billion. But its fund performance has consistently trailed the U.S. stock market, although its hedge funds have also not performed badly. Och-Ziff says its goal is to produce stable risk-adjusted returns. A former Goldman Sach trader, Och has trumpeted producing returns with low volatility. Being public has also allowed the firm to put together rich pay packages to retain its star traders using the firm’s publicly-traded stock. The firm paid one prized trader, James Levin, $119 million in 2013, when Levin was just 31 years old.
Mike Novogratz’s Fortress Investment Group has also struggled since conducing an IPO, which was the first hedge fund IPO in the U.S. Fortress’ stock now trades for $6.61; its IPO clocked in at $18.50. The firm’s important macro fund has performed poorly and is down by some 10% in 2015.
It’s true that Och-Ziff Capital and Fortress Investment both went public in 2007, when hedge fund were rolling prior to the financial crisis. There are also signs that investors are becoming more interested in owning a piece of hedge fund firms.
Griffin is known for bold moves. His next one might bring back the hedge fund IPO.
