How Does Ben Bernanke Add Value to Citadel?

Before fees, the performance of Ken Griffin’s Citadel is almost surely above the market’s risk/return line. After fees and since 2007, I doubt it. After fees, investors in Ken Griffin’s Citadel hedge fund appear have lagged the S&P500’s 6%/year nominal return since its peak in 2007. And it is not as though Griffin is selling a greater degree of safety than the S&P500 offers: Citadel came very, very close to blowing up in 2008, and the most I can say is that I do not know what its true beta is.

When Ken Griffin hires Ben Bernanke, what is he buying other than the ability to tell his investors that they are now protected against any kind of blowup that could have been averted by talking more to an ex-Fed chair? And why would Citadel’s investors want to pay for such reassurance?

It is clear to me what the value proposition is for Peter Orszag at Citigroup: I can think of nobody better able to judge market opportunities in the evolving health-care financing system than Orszag. But what is the value proposition for Bernanke?

Matt O’Brien: Ben Bernanke Deserves His Rayday, but We Still Don’t Have to Like It: “If anyone deserves a seven-figure sinecure, it’s Ben Bernanke…

…[who] put his academic work on the Great Depression to the best possible use when he saved the financial system in 2008, and then went further than any other central banker to try to bring unemployment down. But now he’s putting that expertise to the best possible financial use by signing on to advise the $25 billion hedge fund Citadel…. If hedge funders are willing to pay him $200,000 just to dispense his wisdom over dinner, they’d be willing to pay him a lot more to do so on a regular basis. It’s yet another example of the revolving door between Wall Street and Washington…. Timothy Geithner has joined the private equity firm Warburg Pincus… Jeremy Stein… Peter Orszag… a metronomic quality to it….

It’s hard to blame him. All he’s going to be doing is telling Citadel what he thinks about the economy, and rubbing shoulders with their clients. So it’s even more about boosting Citadel’s prestige as it is about boosting their bottom line…. At the same time, though, it’s a little disappointing that everyone who goes into public service ends up trading in on that to Wall Street…

April 22, 2015

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