The biggest trend in the hedge-fund industry is that the hunt for top traders and investment ideas has expanded beyond firms’ four walls.
The ongoing war for talent and fast-moving markets has the industry’s biggest managers investing in externally run funds and paying outside firms for their ideas, Business Insider has reported. The goal of this outward push is the same as every fund’s main objective: To find market-beating returns wherever they exist.
A review of data gathered from institutional investor data provider Old Well Labs, regulatory filings, media reports, and industry sources shows that these funds are putting their money into a proven pool of talent: firms run by former Citadel portfolio managers.
At least 12 funds run by onetime Citadel traders have backing from the multistrategy peer set of Ken Griffin’s firm, Business Insider’s review of the data shows. Managers such as Millennium, Schonfeld, Verition, Qube, and more have put capital into these funds.
In one sense, it’s expected. Multistrategy managers don’t abandon their strict risk-taking standards just because they are putting money to work externally. The managers run by former Citadel PMs are stockpickers who often trade in a market-neutral style, meaning they hedge their bets to protect against possible market moves against their ideas.
That style of investing is the most popular with allocators right now, according to Nasdaq’s eVestment. A recent report from the data tracker found that allocators put more than $30 billion of net new money into market-neutral equity funds in the first quarter alone.
Story continues below the table.
While Citadel is far from the only multistrategy fund to spawn a network of spin-offs, Business Insider’s review of external investments found that alums of the Miami-based manager — relative to the firm’s peers — were a favorite for SMA investors.
Millennium, the most prolific external investor among the multistrategy firms, has backed and then pulled capital from funds run by former Citadel PMs. Stock-picking Kodai Capital closed when Millennium pulled its capital; the firm’s founder, onetime Citadel PM Neville Shah, now works internally at Millennium. The firm also redeemed its money from Khalid Malik’s Meridiem Capital, which Schonfeld is currently invested in.
Izzy Englander’s firm is set to back former Citadel quant Paul Dou, who left Griffin’s fund in 2024, for the launch of Third Epsilon in Hong Kong.
Not all external investments are the same. Some funds launch primarily with SMA capital from large platforms, while others use this increasingly prominent source of money to grow their overall asset base.
At London-based FIFTHDELTA, run by former Citadel PMs Niall O’Keefe and Tio Charbaghi, the SMA capital the firm has from backers such as Squarepoint and Walleye is on the same terms as the firm’s original investors in its more traditional commingled fund, a representative for the firm told Business Insider.
“This approach ensures full alignment of interests and equitable treatment across our entire investor base,” the representative said in a statement.
Other funds and founders mentioned declined to comment or did not respond to requests for comment.
