Citadel Pulls Off 20% Gain for 2011, Defying Industry

Kenneth C. Griffin, chief executive of Citadel. Jonathan Alcorn/Bloomberg NewsKenneth C. Griffin, chief executive of Citadel.

The gods of redemption are smiling on the hedge fund Citadel.

Ever since the investment powerhouse lost more than 50 percent in a devastating 2008, prompting whispers about the end of Citadel and its boy wonder manager, Kenneth C. Griffin, the Chicago-based fund has been on a tear.

And 2011 seems to be the capstone of that recovery from the financial crisis. Its flagship funds gained more than 20 percent through 2011, according to confidential year-end performance figures sent to investors on Thursday, crushing industry competitors who largely lost money last year.

The returns put Mr. Griffin, who founded Citadel in 1990 at age 22 with $4.6 million, near the top of an elite category of managers this year: those who made money. Other funds that performed well include Brevan Howard, whose bet against Europe proved sensible, and Bridgewater, the world’s largest hedge fund, which makes bets on the macro economy.

By contrast, the average hedge fund lost nearly 5 percent in 2011, according to Hedge Fund Research, which tracks industry data.

Not everything about 2011 was great for Mr. Griffin. The founder, who traded bonds from his dorm room at Harvard, gave up his dream of transforming his hedge fund into an investment bank to rival Goldman Sachs last summer. The retreat was not a complete surprise. The operation had been a revolving door of talent ever since its founding, and advised on just four deals since 2009.

And despite the stellar performance, the hedge fund’s assets, now about $11.1 billion, are still a far cry from their peak of nearly $20 billion before the financial crisis.

But the remarkable comeback last year — and solid returns for the two years prior — have reversed what ranks among the most stunning falls from grace in an industry brimming with schadenfreude. Many competitors took pleasure in watching the suffering of Mr. Griffin, a fierce and often intense competitor, whether from the poor 2008 returns or the constant stream of departures and setbacks related to the investment bank.

So for the last year or two, Citadel has kept a low profile, notching steady gains and working to crawl out of its 2008 hole. The fund is now close, according to people familiar with the fund, but it is not yet ready to declare itself out of the woods entirely.