Ken Griffin, Founder and CEO of Citadel

I think one of the biggest mistakes we make in our country is this sort of sense that when you go to college, you're done with the learning phase of life. Right? Right? When you go to college, what I hope is you've now learned how to learn. Because what defines great careers is the learning you do over the next 40 years in your career.

I'm very happy and delighted to welcome Ken Griffin back to Talks at GS. Ken founded Citadel in 1990 with his partners, and he remains the CEO and co-CIO. In 2002, with his partners, he founded Citadel Securities. Ken, thanks for joining us today, and thanks for the partnership with Goldman Sachs. And on a personal level, it's been a privilege to call you a friend for the past 15 years.

Well, it is great to be here and it's great to be back here again with you.

Let's rewind the tape to when you were 17 and you were profiled by the South Florida Sun Sentinel about—you were a leader at your high school computer club, president of the math club. You were running a mail-order software firm, if I had that right. And I actually didn't know that one. And you already had designs in the stock market. So tell us what was driving you at that early of an age at 17 to be an entrepreneur. It's like Trivial Pursuit. I know.

Look, I've always liked solving problems. If you could tell me I could wake up and solve problems, I'm a happy guy. If you think about math or you think about software engineering, that's all about problem solving. Business is about solving problems to meet the needs of consumers. Like that's what we do at Citadel. That's what you do here at Goldman Sachs. How do you structure a trade? How do you create a product? How do you help a company change its capital structure to build a factory? It's all about solving problems. So it's not that I was driven to be an entrepreneur per se, it's that I just love solving problems.

In 2008, you, like the rest of the industry, was under an extraordinary amount of duress. You know, what decisions did you make in 2008, 15 years ago, that really were pivotal to your survival? And what lessons did you learn about markets and leadership from '08?

I'm going to give just a couple of highlights of '08. And I can't help myself because I'm at Goldman Sachs. And one of the people that I was really grateful to have in my life through the crisis was Lloyd Blankfein, because if you wanted to talk to somebody who really had a view of the world and what was taking place in the world, Lloyd had an extraordinary perspective and was frankly an incredibly thoughtful advisor to me in that very difficult moment. Now, I will share with you a moment that was one of those moments that you wish you'd never had on a phone call with Lloyd. I was calling Lloyd, I'm like, "Okay, when is this crisis over?" And Lloyd goes, "A forest fire ends when there's nothing left to burn."

And I was feeling like I was kindling wood. So it was a pretty tough moment in 08. Big picture, we got through 08 because of long-term capital back in 1998. Wait, say more about that. So when long-term capital failed, Let me just give you the big picture. Imagine you had a hedge fund client that was down 70%. Do you think they'd still be in control of their portfolio? Of course not. Okay. They were down 90 before they lost control. They had the most thoughtful structure to how they financed their business and to how they managed the various forms of risk in their business to literally be down 90% and still be in control. And so when Long-Term Capital failed, I actually interviewed a number of the senior people at LTCM to understand how they pulled off that miracle, that ability to survive in the state of the world where your first reaction was, of course, you're not in control.

They were in control to almost the bitter end. So that dictated how we created our capital structure, how we funded the business, how we managed our affairs. And I'll tell you, the '08 financial market calamity was far worse than the '98 calamity. And thankfully, we had had that playbook of how Long-Term Capital survived '98 to help us get through 2008. Now, big lessons for us: don't pretend to be a bank. A lot of the businesses that we were in in '01, '02, '03, '04, '05, '06, '07 really availed themselves of the phenomenal growth in wholesale funding. And if you go back to that period of time, what you saw was that non-banks like Goldman, like Citadel, and—I'm gonna use a word that we don't wanna hear—like Lehman, had access to cheaper and cheaper funding to fund their businesses every single day over the period of that seven-year run

until the wholesale funding market just literally disappeared. And the survivors when that wholesale funding market disappeared are the firms that either became a bank or firms like us that were able to salvage just enough liquidity to get to the other side. But post that moment in time, we're in the moving business, not the storage business. So we're looking for higher return-on-asset ideas. We're looking for velocity of ideas in our portfolio. We're not interested in what would look like a more classic carry trade, like a bond basis trade. That was a big part of the business back in 2007.

Terrific color. So bringing this to a topic that's near and dear to my heart, and quants, I mean, what's remarkable at Citadel is you have this world-class fundamental equities business and you have a quant business. So how do those two coexist? Will they continue to coexist? Will one crowd the other out, especially with the proliferation of data?

Well, I mean, first of all, I never worry about the crowding out effects within our four walls. You know, we compete with a thousand other hedge fund managers. Yeah. So my, my real competition is, is 990 other firms. Plus what are the banks doing? Plus what are the large asset managers doing? So there's, there's like, there's an endless amount of competition in this world. I'm not worried about internal crowding out dynamics first and foremost. Number two is, is the fundamental equity business at its core is good old-fashioned stock picking. And we very much appreciate the relationship we have with Goldman Sachs because a big part of that business is access to management and to really have the opportunity to spend time with the C-suite executives to understand how business models—I don't want to make this sound trivial—how do they work?

How are they evolving? How are the competitive advantages changing? How is the competitive landscape changing? That you get from your C-suite interface points: the talks with the CEO, the CFO, the COO. You've been very consistent about that over the years. And it's really important. It's good old-fashioned stock picking. And it's appreciating what part of the business model do the others that we compete against not fully appreciate or understand. It's that difference in analysis. And I love that business because I think that business is timeless. I think the ability for humans to understand how businesses are evolving and changing is something that will be outside of the reach of analytics that are found in stat arb or generative AI.

This is a timeless business for us. A simple story to make this point clear is go back to roughly 2006. How many firms in retail, in consumer retail, had a mobile strategy? I don't know. Probably none. Maybe Amazon had something kicked around in the back room and then the iPhone changed the world. And if you're in retail today and you don't have a mobile strategy, you're probably not even really in business. Yep. All right. So these kinds of sea changes are really important to our fundamental equities business. And I think my PMs just do a phenomenal job of staying on top of these transformative moments in markets and how it's going to impact businesses and create value. In our stat arb business, what you're really largely taking advantage of is you're taking advantage of the fact that humans can't keep pricing consistency across thousands of assets at one time.

And a computer using historical data and historical relationships can do that pretty seamlessly. And that's really the core of most of your stat arb businesses today is to think about that problem. Short-term mispricings. Short-term mispricings. Actually, we probably talked about alternative data five years ago. There's no way we couldn't have. And it was all the rage that alternative data was gonna transform the industry. And it's had a modest impact, which was frankly our prior back then. And the reason for it is most of your alternative data sets just do not have a richness of information that transcends that that you have in management team interactions. I got credit card data for a few million Americans with all kinds of sampling bias.

What do you do with that?

The conversation with the CEO is more powerful than...

It's much more powerful because what you're really more interested in is their new product that's going to just take three points of market share away from everybody else. So stat arb business, really good business for us, great leadership team. It's been incredibly successful over the years, but it plays in fundamentally a very different arena than how our fundamental equities business manifests itself.

Speaking of fundamental equities in competition, competing outside your four walls, you're part of a group that we would refer to as multi-manager platforms. And there are more of them today than there were, and they've gathered assets. They've done exceptionally well on a risk-adjusted basis. Hundreds of portfolio managers are now moving to these platforms. So in the future, do you see four to five years from now the existence of a single PM long-short equity fund or will it just all start to migrate to platforms?

Well, so first of all, I think there's a huge distinction between us and most of the quote, 'multi-manager' platforms. We are multi-manager teams. So if you're part of Global Equities or Ashler and you're a technology portfolio manager, you're working with the other tech PMs, you're sharing ideas, your analysts are comparing notes, it's a team sport. And that's very different than most of our contemporaries that really try to have each manager be completely standalone. I mean, they literally think about things like, what if we have two managers that cover tech in the same elevator at the same time? Are they gonna start to have more correlated trading? Really important distinction. Hugely important distinction.

For Citadel, it's a team sport. And we want to have our teams equipped with the best insights and resources to be successful. You can make very different investments across teams than you can against a set of single sole proprietors. It's just a very different ethos. So we're really excited about the fact that we compete with so many firms that have this different approach because they trade a lot and I need liquidity to monetize my research and they give it to us.

Do you have any concerns about the growth there? You know, they haven't necessarily lived through an 08 maybe as robust risk management capabilities.

Look, I, I think the risks that will hit us in 2027 or 2030 are going to be different than those that we experienced in '08. You know, the world's always changing. What's going to catch you off guard? Sure. So, I think that '08, you know, it's still in everyone's stress test numbers. It's a moment in time that I'll never forget, but I think to be myopically focused that that's going to be what happens next is a real mistake. I mean, look at, for example, the U.K. government bond crisis just a few months ago. That was terrifying how the long-dated gilts market just went into complete disarray. We noticed. Right. So, is the next crisis going to be a similar dislocation in the U.S. Treasury market? History in finance doesn't necessarily repeat itself.

It does rhyme. And what we're always thinking about is where are we seeing in the world signs of changes in market structure, market dynamics that should give us anxiety about what might play out next here in our core portfolios in Western Europe and the United States.

But I wanna actually go to your other business, which is Citadel Securities. And so today, for every five shares of stock that trade in the United States, at least one of those is executed by Citadel Securities. It's pretty staggering. And the market share number is even higher in options. Clearly, this has been noticed by Washington and regulators, and there's a raft of SEC proposals that are coming out around market structure. Are there some that you think make sense and others that give you pause?

We have advocated with other major exchanges for years to cut the tick size for your most liquid stocks. For U.S. stocks. For U.S. stocks. So there's probably—and this is where we'll quibble with the exchanges—there's at least 50, there might be 200 stocks where you should definitely move your tick size from a penny to half a cent, which would deal with a lot of, like, the vast majority of the issues that the SEC theoretically is trying to address. Now, I picked that word 'theoretically' carefully. It's not clear to me if the goal of this legislative onslaught is to actually make the cost of retail trading just flat-out higher, that there's a paternalistic mindset in Washington that we don't want.

We don't like zero commissions. We don't. We don't like zero commissions. We don't like trading for close to no bid-ask spread. We think it should be more expensive to trade. It's like a cigarette tax for stocks. And I think there's a perfectly legitimate argument that a fair number of retail investors lost money in their investment strategies over the height of the pandemic—the whole meme-stock frenzy. For sure, yeah. Right? But on the flip side, you exposed tens of millions of Americans back to our financial markets. And you radically increased the number of families that participate in the U.S. equities market. Most importantly, we democratized finance. Like, a country where everybody owns a part of the future of the country, which we do as shareholders, is a country that has much better policies.

And we should be fighting to get people engaged in the stock market in their 20s. Because in your 20s, it's like, "You know, I did the following really stupid trade that my five friends told me to do." But in your 30s, part of your 401(k) is in equities. And you need that to retire in your 60s and 70s. We need people exposed to the markets early in life.

So what you're saying is that democratization of finance and markets may be a more effective way to address the wealth gap than policies coming out of D.C.?

Okay. I mean, number one, if we want to deal with the wealth gap in America, we have to fix schools in America. We don't have enough time to talk about this, but K-12 education is fundamentally broken in America. You and I are worried about like the impact of ChatGPT on white-collar jobs. We'll get to that. And these kids are like, they're gonna face the reality of what job can they be employed in without basic skills in math, reading, and science. So that's the starting point to fix the wealth gap in America. But the second is to get people in America to start saving at an earlier age because the compounding effect of saving at an earlier age and being in the right portfolio of investments is really important to helping to diminish the wealth gap in our country.

And Ken, one of the things I love about you is you put your money where your mouth is. And so you've given away nearly $2 billion in recent years to causes focused on expanding access and opportunity through education, as well as innovation in healthcare. Can you maybe speak a little bit to why you're so focused on those areas in your philanthropic strategy?

Look, we go back to education as the talking point I was on three minutes ago. My dad was the first in his family to go to college. And for my grandmother, nothing was more important than her grandchildren going to college. And she paid for all five of her grandkids to go to college. Education in my family has always been first and foremost. And I've lived a life that's been blessed by having a good education. It's not complicated. Now, I was fortunate enough that my grandmother was in a position to pay for five of us to go to college, which is remarkable because she grew up with no running water. Like her and her husband literally did live the American dream. They came from nothing to where she and her husband, who deceased before I was born, were very successful small-town entrepreneurs.

And so I've been really committed. And in fact, this is how Lloyd and I first met. We first met in the context of what's the right financial aid strategy for Harvard to make sure that every student has a chance to go to Harvard irrespective of where they come from in life. That's how I met Lloyd Blankfein, arguing about those issues to make sure that every kid in this country, if they had the grit and the intellect to get into Harvard, that they would have a way to go to Harvard.

It's extraordinary. Since you brought up ChatGPT, maybe I'll go with that. You can't have a conversation without hearing about ChatGPT. And I'd just like to hear your expectations on generative AI, the economic impact. Our economists suggest the gains through job creation could be vast, but it's gonna take time. Are you excited about this step change in technology? Are you wary? What use cases do you think are most applicable potentially to financial services?

I mean, can you imagine a day when your bond prospectus is written by ChatGPT? The law firms don't like that idea, but the issuers sure do. And that's a real sea change that white-collar jobs are going to be impacted by this technology. That's a really significant difference than most of the technological innovation we watched over the last 70 years, which has transformed factory workers and the life of a factory worker. And so I think we need to all have some anxiety about how this is going to change employment in our country, and how we're gonna have a group of winners and losers again at a very fast rate of change. So just as trade policies with China had devastating consequences to single factory towns, we're gonna see ChatGPT have some very significant implications on parts of the white-collar workforce.

And if people aren't lifetime learners, they're gonna be in trouble because they're not gonna have the mental agility to learn new skills, to take on new opportunities. I think one of the biggest mistakes we make in our country is this sort of sense that when you go to college, you're done with the learning phase of life. When you go to college, what I hope is you've now learned how to learn. Like, that's the most important thing you can learn in college is to learn how to learn, because what defines great careers is the learning you do over the next 40 years in your career. And technologies like ChatGPT are gonna make that really black and white for people. But I think if you look at the 30-some-year history of Citadel, or you look at Goldman Sachs, what's a big part of the success stories of both these institutions?

It comes down to they're both learning organizations. You work with extraordinarily bright people who are just—they have a vested interest in mentoring you and developing you and pushing you, and you carry that with you the rest of your life.

I mean, this came up a lot in our private conversations about work-from-home. I mean, that ability to continue to live into those principles in a remote environment just was considerably harder. In fact, you said a big part of your success recently has been your outspoken perspective on that.

Do I have that right? Well, this is like one of those mixed messages. Like, we make so much money because our competition plays in their pajamas. That's just been a home run for us because it's a markets business, and when you—when you've got everybody under one roof and information moves much faster between team members who are literally close to each other—yeah, okay—there's just—there are so many moments where, "Did you see that?" and we're moving on our feet. My colleagues are going to be wherever they want to be in life in 10 years. Like, they're going to have all kinds of doors open to them of opportunity. So when you're in an environment where you are—if you're not learning from your colleagues around you, you gotta change jobs, you gotta change firms.

That's what makes firms like Goldman just so successful is that constant focus on being surrounded by very good, very bright communicators. So there are other dynamics that go with the work-remotely phenomenon. There's no doubt innovation comes down. I can tell you this: we have not had many breakthrough ideas on Zoom calls. Because most of those breakthrough ideas are, there's a couple of people in a room, there's a whiteboard, somebody's got an idea, and somebody else goes, "You know what? That's really interesting, but here's the real insight. Here's the real insight." And those are the special moments that create the future of our firm.

Ken, we're running out of time. Is there anything I didn't ask that I should have asked, or is there anything that you'd wanna share?

Look, here's one thing I would say, going back to the work-from-home moment and the entire—the challenge that we have in the US economy around what does work mean in the 2020s? Everyone in this room has chosen a career in finance. The terms of engagement are dictated by the market. They're not dictated by the firm you work at; they're dictated by the market. And if you're not really good at what you do, you're gonna get beat by somebody else who is. The advantage of working at Goldman Sachs is that you work with people who are gonna give you the insights and the frameworks to be a good competitor. But you're gonna have to put the work into it. Because if you're not, I'll tell you what: somebody else down the street is.

And that down the street might be down the street here in New York, or it might be down the street in Paris, or it might be down the street in Shanghai. But these are global markets, and we all live in an ecosystem of global competitors. And the biggest advantage that you have going for you right here, right now, is part of Team Goldman Sachs is you work with people who will make sure that you can be a great competitor. But you gotta put the effort into it.

Again, that's an excellent place to stop. That was a tour de force. Thank you very much. Really great to see you today. And let's do it again, not in five years, sooner.