HQ or not, Gotham towers over Citadel's future LYNNE MAREK Newscom Ken Griffin Citadel CEO Ken Griffin says he's having second thoughts about moving the hedge fund firm's headquarters to New York from Chicago, but Citadel's center of gravity already is shifting toward the center of global finance. Citadel, which Griffin founded in Chicago almost three decades ago, has more than twice as many investment professionals in New York as in its hometown. And the firm recently renewed its Chicago office lease without adding space, while inking a deal to enlarge its New York office dramatically. With $29 billion under management, Citadel is by far Chicago's biggest hedge fund firm, and its success in recent years has given the city and a clutch of smaller firms more prominence in the highly competitive, $3.1 trillion industry. Citadel's easterly expansion may diminish Chicago as a financial hub and reduce its appeal to hedge fund talent, investors and vendors. "Citadel was very good at bringing a lot of people to Chicago that wouldn't have come otherwise, and we're probably going to see less of that," says Ilya Talman, a recruiter in the trading technology arena. Citadel has thrived since a near collapse in 2008, outperforming rivals and steadily rebuilding its assets. Headcount has grown to about 1,850 employees in 13 offices around the world. That growth has favored New York, particularly when it comes to executives who make investment decisions for Citadel. The firm has about 400 investment professionals in New York, compared with 170 in Chicago and 355 scattered across other offices, according to sources familiar with its operations. "Unlike many of our competitors, Citadel continues to grow from a position of strength and we are always looking for exceptional talent to join the firm," Citadel spokesman Zia Ahmed says by email. "However, as we grow the business and serve our investors, we must do so in cities where growth and job creation are encouraged and welcomed." He declines to provide total headcount for Chicago or New York. Griffin's waffling on the headquarters comes ahead of a plan to expand Citadel's New York office by moving next year to a Manhattan skyscraper now under development. In January, the firm increased its commitment there, agreeing to occupy 16 of 47 floors. Citadel and Griffin have been gaining as lackluster returns and steep fees have soured investors on hedge funds generally. Hedge fund assets declined 1 percent last year to $3.1 trillion, according to data from Chicago-based Hedge Fund Research. But Citadel's main Wellington and Kensington funds clocked a 9 percent return, compared to an average 5 percent decline across the industry, HFR reports. (The S&P 500 sank about 4 percent.) Citadel bested the return average in 2017, too. NINE TIMES THE CAPITAL While the industry is global, its base is in New York, with nine times as much capital there as in Chicago, HFR President Ken Heinz estimates. To the extent investors and talent are clustered in New York, a bigger presence there may provide an advantage as competition intensifies among a smaller group of big firms. But a Citadel shift to New York wouldn't be a plus for Chicago. "I think it would definitely slow the development of the industry locally," Heinz says. Chicago-based rival Balyasny Asset Management last year cutabout 125 employees, or one-fifth of its workforce, after its assets dropped by about a third, to $7.3 billion, Bloomberg reports. Talman says Citadel and Evanston-based Magnetar Capital, the second-biggest fund in the metro area, also cut employees around the end of the year. "That basically tells you, at least in Chicago, hedge funds have been retrenching," Talman says. A spokesman for Balyasny declines to comment. Ahmed says Citadel didn't have any "material" cuts. Magnetar spokeswoman Tricia Quinn says: "Like many firms in this industry, there have been both departures and additions to our firm's headcount since late last year." The Citadel businesses renewed a lease last year at the flagship Citadel Center on Dearborn Street for the same 418,400 square feet, according to brokerage CBRE. By contrast, Citadel in January added a third to the space it's taking on New York's Park Avenue, for a total of 331,800 square feet. But that was before local opposition forced Amazon to abandon plans for a second headquarters in the city. "Amazon's decision and the recent rhetoric of some of New York's elected leaders has forced us to reconsider having a bigger presence in New York," Ahmed says, echoing his boss. Griffin himself, the richest Illinoisan with a fortune estimated at $10 billion, would be at home in New York or Chicago, among other places. He paid record-setting sums over the past year for residences in New York, Chicago and London.