Citadel takes a step toward going public
The Chicago-based hedge fund plucks a veteran investor relations expert off of Wall Street. So when is the IPO? Fortune's Peter Eavis investigates.
NEW YORK (Fortune) -- Citadel Investment Group, the closely-watched hedge fund company that aims to evolve into a financial firm that can take on Wall Street's biggest brokerages, has poached a senior executive from Goldman Sachs (Charts, Fortune 500) in a move that strongly suggests Citadel will soon announce plans to go public. John Andrews, Goldman's head of investor relations, has agreed to join Citadel, says Katie Spring, a spokeswoman for Citadel.
At Goldman, Andrews was responsible for communicating with investors in the company, which has been publicly traded since its IPO in 1999. Andrews was hired from Morgan Stanley (Charts, Fortune 500) in that year to head up the IR department at Goldman ahead of its public offering. Reached at his Goldman number, Andrews declined to comment.
If Chicago-based Citadel were to remain a private company, there would be little reason to hire the 44-year-old Andrews, who has experience in dealing with a wide range of public market investors, as well as with stock analysts who cover Goldman. His move to Citadel, where he will be a managing director, is a sign that Kenneth Griffin, the 38-year-old founder and chief executive, wants a fully-fledged investor relations department in place ahead of an IPO, which will allow the market to increase its scrutiny of Citadel.
Griffin has spoken publicly about the possibility of taking his company public. Citadel's Spring declined to comment when asked if the company was planning to go public.
Citadel has $16 billion assets under management. That's substantially less than the hedge fund assets under management at Goldman and J.P. Morgan, which have an estimated $30 billion and $20 billion, respectively.
However, Citadel is seen as a competitor because of its consistently strong performance. On aggregate, Citadel's funds are up 20% from the beginning of the year, according to a person familiar with Citadel's performance numbers. By contrast, Goldman's flagship Global Alpha hedge fund was down 33% from the beginning of the year to the end of last month, according to the Wall Street Journal.
On average, the broad hedge fund universe covered by Hedge Fund Research is up 6.17% from the beginning of the year to the end of August, according to HFR.
What makes a potential Citadel IPO intriguing is Griffin's ambitions to turn Citadel into more than a hedge fund. His desire is to build an influential financial company that would rival firms like Morgan Stanley and Goldman Sachs. In addition to managing money, Citadel already provides hedge-fund administration services to other funds and operates a substantial market-making business.
With markets raising questions about financial firms and the accuracy of their balance sheets, this might not seem like the best time for Citadel to go public. Investors might be skeptical about a hedge fund company that makes a lot of its profits from highly sophisticated trading strategies, despite the impressive 2007 performance figures. That wariness is seen in the sharp drops in the stock prices of Fortress Investment Group (Charts) and the Blackstone Group (Charts), two large "alternative investment" companies that went recently went public. Indeed, a year ago, Citadel's army of math and physics PhDs, deployed to seek out new investment bets, may have wowed potential investors. Today, though, it's hard to see a company like Citadel commanding as high a valuation as it might have at the peak of the hedge fund boom.
That may not matter to Griffin, who probably wants to get on with diversifying his company. Going public has to be a big part of Griffin's empire building, even if it means filing detailed financial statements every quarter that could give competitors some insight into trading strategies. That cost is probably outweighed by the benefit of being able to secure broader, cheaper funding over the long term, as investors become reassured that they can periodically take a close look at Citadel's books when it files financial statements with the Securities and Exchange Commission.