Bberg: Citadel Hedge Fund Falls 30% on Bond, Stock Losses

"Citadel Investment Group Inc.'s biggest hedge fund fell as much as 30 percent this year, because of losses on convertible bonds, stocks and corporate bonds, said two people familiar with the Chicago-based firm.

Kenneth Griffin, who founded Citadel in 1990, said in a letter to investors this week that returns for the $10 billion Kensington Global Strategies Fund may swing wildly as markets are battered by the global credit crunch. Griffin holds 30 percent of the firm's $18 billion of assets in cash, according to an Oct. 8 report by Standard & Poor's.

``In the weeks to come, I expect we will continue to see significant volatility in our earnings as the world manages through the unfolding crisis,'' wrote Griffin, 40. ``It is incumbent upon us to navigate through this period and to create value for our stakeholders over the years to come.''

Kensington's loss, more than double the decline of the Credit Suisse/Tremont Hedge Fund Index, may dent Griffin's reputation as a consummate risk manager with no patience for traders who can't make money. Kensington's only annual loss was a 4 percent drop in 1994.

Katie Spring, a Citadel spokeswoman, declined to comment.

Citadel may have difficulty selling convertible bonds, which accounted for about a quarter of the loss, because there is little demand. The market tumbled 13 percent in October, according to a Merrill Lynch & Co. index. The benchmark is down 21.5 percent since the end of August.

``It's very hard to get out of positions,'' said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey, which manages $22 billion.

Not Pessimistic Enough