GP Commentary: Ken Griffin is someone VCs look up to because he’s basically mastered the art of making money work harder than anyone else. He built Citadel into this absolute juggernaut of a hedge fund by being laser-focused on strategy, risk, and execution. The dude doesn’t just rely on gut instincts—he’s all about crunching data, using cutting-edge tech, and finding angles most people miss. That’s the kind of mindset VCs love because it’s what separates the winners from everyone else in the startup world. Plus, Griffin’s all about surrounding himself with A+ talent and pushing for a culture of excellence, which is exactly what VCs look for in founders—they want someone who can build a killer team and go all-in on innovation.
Another thing that makes Griffin a legend in VC circles is how he gets liquidity and capital efficiency better than almost anyone. He’s constantly adapting Citadel’s playbook to whatever the market throws at him, and that kind of flexibility is gold when you’re dealing with startups and high-risk bets. On top of that, he’s not just about making money—he’s big on philanthropy and being a part of the broader financial and tech communities. It’s like he’s got this perfect mix of hustle, smarts, and impact, which is why so many people in the venture space see him as a blueprint for how to win big and still give back.
Introduction 00:00
- Kenneth Griffin is one of the best investors of all time and is the founder of Citadel, an investment firm with the ambition of being the most successful of all time 00:07.
- Kenneth Griffin started his journey in finance from his Harvard dorm 00:09.
- Citadel has a great ambition of being the most successful investment firm of all times 00:15.
- Kenneth Griffin is welcomed to the podcast “In Good Company” for an interview 00:22.
- Kenneth Griffin expresses his pleasure in being on the podcast and thanks the host for having him 00:27.
What motivated you to go into Finance 00:32
- Kenneth Griffin has always been interested in the stock market, although the reasons behind this interest are not fully understood by him 00:34.
- In third grade, Griffin wrote a paper expressing his desire to learn how the stock market works, marking the beginning of a nearly 40-year journey to understand the markets 00:42.
- Griffin views the equity markets as a complex and interesting field, filled with problems at the intersection of business models, earnings, and investor psychology 00:57.
- He believes that valuing businesses and becoming a successful investor in the stock market is an endless journey of learning and self-improvement 01:09.
- Griffin considers the stock market to be the most complex game in the world, making it a challenging yet engaging field to navigate 01:14.
What was your vision when you started 01:17
- Kenneth Griffin’s vision began to take shape in his Harvard dorm as a freshman, where he made his first investment by buying two put contracts in Home Shopping Network 01:19.
- Griffin’s investment decision was influenced by an article in Forbes by journalist Gret Morgenson, who presented a thesis on why Home Shopping Network was the “meme stock” of that time 01:33.
- Griffin bought the put contracts based on Morgenson’s thesis and made a few thousand dollars when the stock crashed shortly after 01:52.
- At the time, making $2,000 or $3,000 seemed like a significant amount of money to Griffin as a college freshman 01:59.
- When Griffin sold the put contracts, the market maker paid him less than their intrinsic value, which sparked his curiosity about the pricing of derivatives 02:07.
- Griffin realized he got lucky with the timing of the put contracts’ expiration and became interested in learning about the pricing of derivatives to understand how the market maker made a risk-free profit 02:17.
- Griffin’s interest in derivatives pricing led him to explore the pricing of convertible bonds, which became the area he focused on when he started his first hedge fund from his college dorm room 02:35.
Opportunities in the markets today 02:44
- There are as many opportunities in the markets now as there were when Kenneth Griffin started, but the opportunity sets are different today 02:44.
- The commodification of the knowhow of how to price derivatives has been incredible, with a tremendous number of programs around the world offering Masters and PhDs in financial engineering 02:55.
- As a society, the knowhow when it comes to investing has increased significantly, but the markets today are much bigger, global, and have far more product proliferation 03:09.
- Despite the increased complexity of the markets, there will always be niche opportunities for investors to gain an insight and have a competitive advantage in trading 03:20.
Mistakes Kenneth made 03:27
- Kenneth Griffin made every mistake possible in finance, and unfortunately, repeated some of them two or three times, but learned from them to build on his experiences 03:28.
- The key in finance is to learn from both successes and failures, rather than just focusing on one or the other 03:35.
- People often fail to study their winning trades to learn what they did right, which is crucial because making money in finance comes from having winners 03:54.
- There tends to be too much emphasis on learning from losses and not enough emphasis on learning from successes 04:01.
Winning strategies 04:11
- Winning strategies involve having a clear competitive advantage in assimilating information, processing that information, and reacting to it, which is where the firm does best 04:21.
- The firm is architected around the principle that it is in the research business, with research being the core of the business 04:35.
- The core business involves good old-fashioned research, whether it’s stock picking or forecasting the weather to trade commodities 04:43.
- Trading is simply a means to monetize the research, and it’s a straightforward process 04:54.
US economy 05:00
- The US economy is currently in uncharted territory, with near full employment, inflation around 3%, and a massive government spending binge, which is unexpected given the economic cycle 05:09.
- Typically, at this point in the cycle, governments try to pay down debt, put their fiscal house in order, and create capacity for flexibility when the next recession or economic downturn occurs 05:40.
- However, the US government is still engaged in a massive degree of fiscal stimulus, contributing to hotter inflation and leaving the country in a more precarious long-term position with fewer degrees of freedom to deal with the next recession or depression 05:57.
- This situation is unusual, as economists would not have expected the US to be in this position, with near full employment and inflation around 3%, while still experiencing a massive government spending binge 05:22.
- The current economic situation is creating a challenging environment, with the government’s actions potentially limiting its ability to respond to future economic challenges 06:13.
Fiscal deficit 06:18
- Concerns about the fiscal deficit include the dangers of crowding out private sector access to capital, as large government deficits around the world could limit the private sector’s ability to access capital 06:34.
- The fear of crowding out is still present among those who think about long-term processes and how to ensure the private sector is not crowded out by government spending 06:41.
- Another important point is the matter of equity, with a focus on income inequality and the fact that the current standard of living is not in sync with productivity or the emerging culture of work 06:59.
- The current level of spending is seen as unfair across generations, as it involves borrowing from the future, specifically from children, grandchildren, and great-grandchildren, to maintain a standard of living that is not sustainable 07:11.
- The issue of equity is highlighted as a key concern, with the current spending habits being seen as not fair to future generations 07:28.
Improving productivity 07:40
- Improving productivity in the Western world is crucial for sustaining prosperity, and this can be achieved by addressing two key areas: education and work practices 07:42.
- The education system, particularly in the United States, needs to be improved as K-12 education is leaving children at a competitive disadvantage compared to the rest of the world and an absolute disadvantage in life 08:05.
- Children are not being exposed to ideas and concepts that will enable them to have a rewarding and rich career, emphasizing the need for education reform 08:21.
- The work-from-home phenomenon is reducing mentorship, collaboration, leadership development, and innovation, highlighting the importance of bringing people back together to work collaboratively 08:32.
- This is essential for developing leaders and preventing a leadership deficit in the Western world in the next 20 or 30 years 08:48.
- Implementing a no-home-office policy, as seen in Citadel, has positive mental health ramifications, including increased employee engagement, happiness, and a clear separation between personal and professional life 09:04.
Education back to office 09:24
- To promote economic growth, it is essential to encourage entrepreneurship and the expansion of small and medium enterprises, which can be achieved through thoughtful government regulation 09:30.
- This approach will lead to increased competition in the economy, which is crucial for its development 09:40.
- The West should continue to engage in trade policies that promote the benefits of free trade across North America and Europe 09:46.
- There is a need to reconsider the trends towards protectionism between North America and Europe and instead work towards creating greater economic integration 10:02.
Are we in a bubble 10:05
- It’s difficult to determine if the stock market is in a bubble because, during a bubble, there are clear justifications for why prices are where they are, and a whole vocabulary and set of frameworks are created to justify and rationalize the bubble 10:12.
- The dot-com bubble had key conversations about e-commerce radically changing the way goods are secured, and metrics like eyeballs on pages became dominant pricing metrics for securities, but people got carried away with valuations 10:32.
- Many of the things envisioned during the dot-com revolution have actually happened, and some of the biggest companies in the world today are symbolically the same businesses or similar to those envisioned during the dot-com phenomenon 11:04.
- The current AI frenzy is similar, and it’s interesting to see how fast AI wins will be incorporated into daily lives and businesses, with the speed of adoption expected to be quick 11:36.
- A second trend happening now is the rise of the importance of the Chief Information or Chief Technology Officer in the C-suite and boardroom, with a focus on digitalization and the use of software and analytics to improve businesses 11:53.
- When talking to CEOs, they often mention how their companies have embraced AI and its profound impacts on their business, but upon closer inspection, there’s often no AI involved, just an embracing of modern capabilities and digitalization to improve businesses 12:13.
- The AI dialogue has reopened the conversation about using technology to make businesses more successful and effective in delivering goods and value to consumers 12:43.
How do you embrace AI 12:53
- AI is used at Citadel in various ways to enhance productivity among team members, such as helping to draft emails, summarize research pieces, and write introductions to memos and other documentation 12:54.
- AI is also used for mundane tasks, like tagging data, and for important tasks, such as helping software engineers be more productive 13:16.
- Machine learning, a subset of AI, has been used at Citadel for around eight or nine years, primarily for pricing assets and, to a lesser extent, risk management of assets 13:38.
- Machine learning plays a crucial role in how Citadel thinks about the pricing of assets 13:49.
- The use of AI is expected to increase over the next two or three years, with many people using it to enhance their productivity in various tasks 13:03.
What did you think when you started Citadel 14:02
- Citadel was started by Kenneth Griffin, who had the opportunity to manage $1 million for a fund of funds based in Chicago at the age of 20, with the promise of help to start his own business and raise capital if he performed well 14:16.
- Griffin started Citadel just over a year after finishing college, raising around $4.5 million in November 1990, and initially focused on one strategy: trading equity-linked derivatives, convertible bonds, and warrants compared to common stock 14:29.
- Griffin believed that mathematics and software could be used to understand pricing relationships in the area, which was a unique approach at the time, as most of the world was still using paper, pencils, and rules of thumb 14:55.
- Griffin hired a rocket scientist to help work on pricing models, which was met with skepticism by some, including a friend from a major bank who laughed at the idea of using such advanced techniques for bond trading 15:09.
- Despite initial skepticism, Citadel managed to ride the wave of the rise of mathematics in finance, which has since become a standard approach in the industry, and has grown to become one of the most important firms in the world in the financial markets 15:36.
- The bank where Griffin’s friend worked is no longer in business, while Citadel and Citadel Securities have become major players in the financial markets 15:28.
Whats been the challenges in riding this wave 16:01
- The largest challenge in riding the wave has been the necessity to create one’s own talent by hiring people with diverse backgrounds, such as physicists, nuclear engineers, and mathematicians, who were not typically found on Wall Street at that point in time 16:02.
- These individuals had to be taught about finance and engaged in solving complex problems, including how to value derivatives and complex securities 16:27.
- A knowledge gap existed between those committing the capital and those helping to write the analytics for decision-making, which needed to be bridged 16:42.
- The ability to innovate was crucial in addressing these challenges and creating a successful team 16:51.
Why is Citadel so successful 16:52
- Citadel’s success can be attributed to its unique approach in finance, combining the art and science of investing to make informed investment decisions 17:02.
- The firm brings rigor and discipline to understanding where it can create differentiated insights, giving it confidence in deploying capital 17:24.
- Citadel’s experience, gained through navigating difficult market moments and learning from past losses, has converted into wisdom, making its leadership team more effective investors in times of turmoil and crisis 17:47.
- The leadership team’s shared experience of going through challenging market periods together has allowed them to learn from bitter lessons and become more effective investors 17:51.
How has passive investing changed the world 18:02
- The investment landscape has undergone significant changes, with a notable increase in passive capital and short-term capital over time 18:02.
- The rise of passive investing is largely attributed to the realization that markets are either efficient or semi-efficient, allowing investors to gain low-cost exposure to broad indices or specific sectors without incurring the fees associated with active management 18:19.
- Passive investing has been revolutionary for the world, offering a cost-effective way for investors to access various markets and sectors 18:43.
- However, passive investing relies on certain conditions to be effective, implying that its success is contingent upon specific market circumstances 18:48.
Passive investing requires capable successful and competitive traditional asset managers 18:52
- A meaningful community of people involved in fundamental research helps set the pricing of securities, which is essential for passive investing to work 18:52.
- The existence of capable, successful, and competitive traditional asset managers is required for the theory underlying passive investing to be effective 19:00.
- The rise of short-term investors contributes to ensuring that markets are efficient with respect to rapidly evolving news 19:16.
- It is crucial to ensure that traditional asset managers have the ability to have prosperous and successful firms, as they are critical in the price discovery process that passive investing depends on 19:32.
- Traditional asset managers play a vital role in the price discovery process, making it essential to support their success for the effectiveness of passive investing 19:39.
What is the best way to make money 19:44
- For individuals with a full-time job, such as lawyers, dentists, or teachers, the best way to make money is to invest in a broad-based equity index product or an actively managed pool of capital that is broadly based in its management 19:49.
- Large pools of capital, like the Norwegian Sovereign Wealth Fund, can benefit from indexing a substantial portion of their capital to indexes, providing low-cost exposure to global growth and profitability 20:14.
- It is also recommended for large pools of capital to invest in assets away from equities and use a combination of external managers and internal capabilities, depending on the relative competitive advantages of each 20:40.
- Effective management of large capital pools involves doing what can be done cost-effectively in-house and finding the best external managers and strategies around the world to provide portfolio diversification 20:57.
- The approach to managing capital should be thoughtful and consider the deployment of massive quantities of capital in a way that balances cost-effectiveness and competitive advantage 20:37.
How do you stay at the top 21:30
- Citadel’s success can be attributed to its incredible leadership team, comprising world-class leaders who run various businesses within the company 21:50.
- The leadership team is constantly engaged in improving and strengthening investment strategies through a high level of engagement with senior leaders on core problems 22:06.
- Recruiting great talent and developing great risk-takers are key areas of focus, with an emphasis on human capital development 22:11.
- Deploying capital into the hands of the best risk-takers when opportunities arise is crucial, with a huge emphasis on deploying capital with the best people 22:22.
- Building a competitive advantage is a second key thread in everything Citadel does, involving gathering information better and making better decisions 22:36.
How are the teams structured 22:44
- The business is structured as a variety of verticals, including a global Commodities business, a long/short equities business, and various credit businesses 22:56.
- Within each vertical, Business Leaders are asked to act as entrepreneurs with access to unlimited capital, determining the right team, strategies, and competitive advantages to build and utilize in today’s environment 23:11.
- The businesses are run with a mindset of a clean sheet of paper, focusing on what should be done today to be one of the most effective deployers of capital in the world’s financial markets 23:33.
- Investment strategies are decided between portfolio managers, business heads, and Kenneth Griffin, working together to create the most successful investment strategies possible 23:55.
How do you look at your mistakes 24:11
- When hiring a portfolio manager, the goal is to provide them with sufficient capital to support a superlative team around them, as investing is viewed as the undertaking of world-class teams that facilitate healthy debate and dialogue to uncover the truth 24:25.
- The focus is on creating an investment process that is repeatable, and the portfolio manager can learn from both successes and failures, and teach this process to their team members to create operating leverage 25:17.
- When a portfolio manager joins the firm, time is spent understanding what team to put around them and how to recruit the best and brightest to be on their team 25:06.
- The goal is for the portfolio manager to have an incredibly successful career, and the firm wants to see them succeed, rather than wanting to sack them 25:39.
- Careers can derail due to various reasons, including some people being poor risk-takers, unable to demonstrate a clear and concise competitive advantage in their portfolio positions, and being unable to help themselves and improve their portfolio construction despite having full information 25:51.
How do you use alternative data 26:22
- Alternative data sources are utilized based on the nature of the investment, such as prevailing airfares for airlines and inflation forecasts for economic predictions 26:26.
- To forecast inflation, every element of the Bureau of Labor Statistics (BLS) inflation forecast in the United States is broken down and analyzed 26:46.
- In the Commodities markets, a world-class meteorology effort is employed to predict short-term weather patterns and their dispersion 26:58.
- The focus of alternative data usage is on the specific problem at hand, such as understanding what information drives business revenues or commodity demand 27:09.
- The goal is to peel back the layers and secure relevant information in an appropriate way, process it quickly, and make informed decisions 27:19.
What is a market maker 27:34
- A market maker is a firm that provides liquidity to buyers and sellers who are not contemporaneously meeting each other in the marketplace, facilitating trades when there is no immediate buyer or seller available 27:55.
- When a seller wants to sell a large quantity of stock, such as $50 million, and there is no buyer in the market at that exact instant, the market maker uses their capital to facilitate the trade, hoping to find the eventual buyer of the stock at some point in the future 28:10.
- Market makers operate on a massive scale around the world, trading in fixed income and equity products, with Citadel Securities trading almost 25% of all the equity that trades every day in the United States, with a daily turnover of $400 billion across all asset classes 28:44.
- In the future, Citadel Securities is expected to deepen its presence across more products, expand its reach across more trading partners, and offer a variety of other services that investors value, such as corporate access and access to new issuance 29:04.
- The company aims to broaden its scale and scope over the years to come, continuing to solve the challenges and problems that its clients face 29:20.
- Citadel Securities is one of the world’s most sophisticated market makers, and its role is important in providing liquidity to the market and facilitating trades 27:43.
The bigger picture 29:30
- The current geopolitical situation is concerning, with the war in Ukraine being a heartbreaking event to watch, resulting in a significant loss of life and devastating economic impact on the Ukrainian people 29:36.
- The war in Ukraine is unexpected, as it was previously thought that such a conflict would not occur in Europe again 29:56.
- The situation in the Middle East, particularly the recent strike by Iran on Israel, is also a cause for concern, although the region has historically been more susceptible to geopolitical challenges 30:17.
- The events of October last year and the war in Gaza have added to the heartbreaking moments for humanity across these two fronts 30:31.
- The current era of peace that many people have grown up with has come to an end, with the last two and a half years being marked by significant geopolitical tensions 29:43.
Take over the finances of the US 30:44
- Kenneth Griffin was asked if he would take over the finances of the United States, and he responded that if the country had a financial challenge and he could be of help, he would do that 30:45.
The importance of having talent 30:56
- Kenneth Griffin emphasizes the importance of having talent and spends a significant amount of time on recruitment, considering it a top priority for the firm. 31:00
- He is constantly talking to candidates, as he believes that the talent brought into the firm and developed within it is crucial for its success. 31:07
- The talent within the firm plays a key role in the deployment of capital and the building of businesses, ultimately leading the firm forward. 31:18
Citadels talent pool 31:23
- Citadel receives a large number of job applications, with approximately 100,000 applicants from colleges and universities around the world for a limited number of positions 31:24.
- This high volume of applications is notable, especially considering that Citadel is known for having a traditional work environment with a 5-day workweek in an office 31:44.
- The large number of applicants suggests that many young adults are seeking a work environment that offers mentorship, leadership development, and career growth opportunities 31:51.
- This trend is seen as a positive sign for the future, with the hope that businesses will be able to provide these students with the experience and opportunities they are looking for 32:05.
Interview with Kenneth Griffin 32:16
- Kenneth Griffin looks for three key qualities in people at Citadel: ambition to change the world of finance, strong communication skills to convey ideas, and the ability to reason and rationalize across a broad array of problems, as problem-solving is inherent in their work. 32:37
- He believes that strong communication skills are extraordinarily important in any commercial undertaking, as the ability to express an idea is crucial in debating and getting to the truth. 32:51
- Griffin values people who are good thinkers and problem solvers, as they are the ones who prosper at Citadel. 33:27
- He thinks that it’s necessary to meet people in person to assess these qualities, as people know how to write CVs to hit the sweet spot of the employer they’re seeking. 33:37
- To find out if someone is a good problem solver, Griffin asks about specific problems they’ve solved, such as those related to a prior summer job, a thesis, or a business they launched. 33:52
- Griffin mentions that one of the most difficult problems to solve is multi-period optimization, which involves creating the optimal portfolio based on different views of how a stock will move over time. 34:27
What does it mean to enjoy being a good competitor 35:00
- Enjoying being a good competitor means having a strong desire to win and being wired to enjoy the process of competing, which is essential for success at Citadel 35:02.
- Citadel looks for people who really enjoy winning and are drawn to the financial markets, which provide a daily scorecard of their performance as a competitor 35:12.
- People who like to compete and win tend to thrive at Citadel due to the real-time feedback they receive from being part of a leading financial institution 35:22.
- The success of their research and its impact on the portfolios they build and construct also motivates and fulfills these individuals 35:35.
- Leadership at Citadel recognizes the importance of this competitive drive and seeks to foster an environment that encourages and rewards it 35:43.
What is good leadership 35:44
- Great leadership involves dealing with the realities of a situation at hand, being matter-of-fact about problems, issues, and opportunities, and making rational decisions around them 35:49.
- Effective leaders are centered in the reality of a situation and do not suffer from sunk cost fallacy or undue hope when a situation is not hopeful 36:11.
- Good leaders consistently make rational decisions, unaffected by biases or unrealistic expectations 36:21.
How important is speed 36:27
- Great leadership often involves understanding the importance of speed in decision making, which is a trade-off between two axes: accuracy and speed 36:28.
- The ideal balance between accuracy and speed depends on the situation, and sometimes it’s more important to be nearly right and quick than to be absolutely right and slow 36:50.
- The cost of changing one’s mind is a key determinant of how fast a decision should be made 36:59.
- In situations where decisions have long-term consequences, such as a 40-year real estate development project, it’s more important to be thorough than quick 37:09.
- In contrast, in situations where decisions can be quickly reversed, such as buying and selling stocks, speed is more important, as seen in the example of buying $500 million of Apple stock 37:15.
Analysis with gutfield 37:27
- Balancing analysis with gutfield involves recognizing that the best gutfield is almost like subconscious analysis, where a person’s subconscious plays out their past experiences and knowledge to guide their decision-making 37:28.
- When people rely on their gut feeling, it is often a reflection of their intrinsic ability to analyze a problem and make a decision, even if they haven’t explicitly thought it through or put it down on paper 37:39.
- Gutfield can be seen as a result of having many experiences and “at bats” in a particular problem area, allowing individuals to develop a sense of what the answer is, even if it’s not fully articulated 37:47.
What would happen if you step down 38:03
- The decision-making process at Citadel is not based on gut feelings or personal intuition, but rather on thorough analysis and reflection of the information gathered by the analysts 38:03.
- Citadel has a team of people who are capable of successfully running the business without the current leadership, ensuring a smooth transition in case of a change 38:25.
- The current leader has no intention of stepping down, as they enjoy their job and are passionate about the work they do, and the people they work with 38:34.
- In the event of an unexpected departure, the firm has great partners who would be able to take over and run the business effectively 38:45.
What would you study 38:49
- If given the opportunity to go back to university, the focus would be on studying philosophy and government, as these subjects have always been of interest and are crucial for good governance and informed policy decisions 38:53.
- Additionally, time would be spent studying mathematics and computer science to gain a better understanding of the current state-of-the-art in these fields, as it has been a long time since being in a classroom studying these subjects 39:18.
- The area of curiosity ranges from innovations in biotechnology to computer science, with a particular interest in developments taking place in STEM fields around the world 39:34.
- Specific areas of interest within STEM include nuclear fission, nuclear fusion, microprocessors, and genetics, driven by an insatiable thirst to understand more about problems and developments in these broad fields 39:47.
How do you relax 40:06
- Kenneth Griffin enjoys biking as a way to relax, taking advantage of the great biking opportunities in Miami 40:17.
- He is fortunate to have three young kids who are roughly teenagers and they consume most of his free time when he is not at work 40:21.
- The majority of his time outside the office is spent with his three kids 40:26.
Advice to young people 40:34
- Advice to young people is to pursue what they are passionate about, as it is essential to be passionate about the work to excel and be satisfied with one’s career 40:34.
- Areas of interest can vary, such as being a doctor, lawyer, or picking stocks, but it is crucial to find what intrinsically motivates and drives an individual 41:07.
- Being driven by extrinsic motivation can lead to a shallow life, so it is essential to find one’s intrinsic calling in life 41:16.
- An example of this is a young woman who was talented on the investment team but decided to leave to attend medical school, and the response was to support her decision and offer to write a letter of recommendation 41:27.
- The world needs people to pursue their passions, and if being a doctor is what someone wants to be, then they should be supported in making their dream come true 41:52.
