Ken Griffin’s Citadel is on track to defy a sluggish year for commodities trading on Wall Street, enhancing the hedge fund’s image as a dominant force in the asset class.
Citadel’s commodities business generated about $4 billion in profits this year, boosted by natural gas trading, according to people familiar with the matter. That puts it on track to match last year’s performance.
The firm’s main Wellington fund has gained about 13.2% this year through November. A spokesman for Citadel, which managed $65 billion as of Nov. 1, said the firm does not comment on its results.
Trading gains, particularly in energy, were reduced across the industry as a prolonged period of instability following the pandemic and Russia’s invasion of Ukraine began to ease.
The slowdown is taking its toll on companies such as Glencore Plc and Gunvor Group, as well as hedge fund boss Pierre Andurand, who earlier this year ditched oil trading for bets on copper and cocoa.
The profit in Citadel’s commodity unit extends its positive streak. It generated more than $4 billion last year and will roughly double that amount in 2022.
The crude oil and fuel trading business has encountered some challenges this year, with the departure of portfolio manager and fuel trader Drew Beaver as the Houston-based team’s performance weakened. But big gains in natural gas trading in Europe and North America eventually boosted profits, the people said, speaking on condition of anonymity while discussing private results.
Citadel is uniquely positioned because of its trading group, Citadel Energy Marketing. The unitheaded by the former Morgan Stanley head of merchandise Jay Rubenstein, has been a key source of profit in recent years as it encompasses physical commerce such as warehousing and transportation. The business also includes weather derivatives and modeling, which can be key tools for trading natural gas.
Citadel’s success in navigating the physical and financial commodity markets has prompted a flurry of competitors to follow suit. Balyasny Asset Management and Jain Global are among the firms building physical companies to increase trading profits.
