Ken Griffin Talks Investing, US Economy at the Qatar Economic Forum 2024

Ken Griffin, thank you so much for joining us here in Doha. Eric, it is great to be here today. We have a lot to talk about, as usual, folks. I have been fortunate enough to have a long-standing relationship with Ken and have had the opportunity to interview him many times. I think of this as an evolution in so many ways, Ken, of things that we've touched on in the past. One of those things, of course, is geopolitics, a subject you've— So first of all, what a graceful way to describe aging and evolution. Geopolitics is a subject that has come up already many times on this stage, Ken. The world, as you know, is divided by conflicts. We have hot wars in Ukraine and Gaza, and a cold war, you might say, between the United States and China.

And increasingly, these conflicts are forcing states to pick sides, and thus, they're realigning global trade and investment. What we'd like here, Ken, is your perspective on the trajectory of these geopolitical trends and your ideas as to how they're shaping or perhaps reshaping the macroeconomic landscape you have to navigate at your firm, Citadel and Citadel Securities?

So that's a great question, because it was just a few years ago that I think most of us viewed the world as heading towards geopolitical stability. A better place, in other words, yeah. Yes, and a more integrated market—both financial, flows of goods, flows of services, and even the integration of labor markets. And now, with both the war in Europe, the tension between the United States and China, and then, in a different way, what's unfolding in the Middle East between Israel and Hamas, it's very clear we live in a different world than we had all experienced and fantasized about just a few years ago. Now, the upshot of this is that the traditional alliances post-World War II are regaining strength.

You see the NATO countries coming together more tightly. You see the United States trying to pull its allies closer together, whether it's Australia, the Pacific, or our allies in Europe. So there is definitely a reassertion of the importance of global institutions, and in particular, the post-World War II frameworks that are once again at play. As an investor, it's an interesting point in time because if you are in the United States, there's a sense that deploying capital in the markets of our clear allies is the safest path to go. In fact, you'll often hear American money managers, for example, say that China is uninvestable because of the tension between the United States and China. That's on clear display.

And yet, if you're here in the Middle East, where China is an important importer of oil and other products from across the region, it's a very different story. China's clearly investable because of the closeness forming between China and this part of the world. So you do see both the re-strengthening of historical relationships, new ties being built, and capital follows the flows of these geopolitical arrangements. Are you worried about the direction the world is headed? Of course I am, and I'm willing to bet that you are also. This is not where we want to see the world head, for just a number of obvious reasons. I mean, first of all, global trade, which had adverse consequences that we're learning about to this day, still unleashed an enormous amount of gain for humanity.

And with the rise of global trade became the rise of information sharing around the world, which rapidly accelerated the trajectory of mankind. I mean, of note, the Chinese, for example, are leaders in solar. They're leaders in EVs. They're leaders in a number of emerging technologies. In a world which is more splintered, we'll see the gains that the Chinese have achieved in these important areas not shared by the Western countries. And conversely, the United States is a clear leader in AI, along with a number of the European countries, and those gains will not be shared with China and the countries in its sphere of influence. So it's a very clear-cut loss for all of humanity when we have the severing of ties between our countries.

On a practical level, is it getting harder to manage the risks you face?

I think that one has to be aware that there are more tail risks that are harder to ultimately manage. And that goes with this rise in geopolitical complexity. So I think that's certainly true, that there are just larger tails today that didn't exist or we didn't perceive them to exist seven or eight or 10 years ago. So that is intrinsic in money management today, and that's something that we think about each and every day at Citadel: how do we mitigate the tail risks in this world? How do you mitigate the tail risks? Well, part of it's sizing, so part of it is how much exposure will you have to a strategy or to a particular sector of the economy or to a particular country. That is the go-to playbook for managing your tails: just what's the most you're willing to have exposed to a possible adverse event.

And then the other strategy is to look for correlated payoffs that will protect you in the event that the tail scenario occurs. So those are two things that you do in your portfolio construction to manage against the tail risk in this environment.

Ken, moments ago you mentioned China and EVs. As it happens today, the Biden administration is levying sweeping new tariffs on Chinese imports, including on electric vehicles. How does that change the picture?

Well, it's sort of a continuation of the incoherent economic policies of the Biden administration. We've seen this giant push towards green energy over the course of the last several years. And at the same time, a set of policies that run completely contrary to the stated goal of trying to head towards a zero-carbon world. And placing enormous tariffs on Chinese EVs, which are low-cost, high-quality, of great value to American consumers, is yet another part of the incoherent Biden economic strategy. The other part of the strategy that I scratched my head about is the US refusing to provide new LNG permits. If you want the world to head towards a lower carbon footprint and move away from coal, access to LNG is a really important part of the equation.

And yet the United States is refusing to permit new facilities in the foreseeable future.

And also to sell LNG to countries with which the United States doesn't have a free trade agreement. That's a part of the equation also. That said, the United States, amazingly, is a bigger LNG exporter than Qatar.

We're neck and neck. We're neck and neck. And it's very important to understand that if you want a country to base its economy on natural gas, they're going to want two suppliers. It's not a win-lose dynamic between the United States and Qatar. It's a win-win. If you look at any good that is required on an existential basis, you're going to want dual-source supply, and the rise of the United States as a major LNG exporter only strengthens the position of this region of the world in providing natural gas to other countries.

Going back to China for a moment, we've talked about China in the past. You have what I would call a constructive view of China, certainly more constructive than many people with whom I've spoken. There is, however, strong hostility to China among both Republicans and Democrats. So how would you explain the way you look at the opportunity and the problem that China presents, particularly to the United States?

So that's a treacherous question to have to answer. Let's take a huge step back. I think that my view towards China is rooted in respect. It is rooted in the respect of a country that has pulled more people out of poverty in the last 40 years than any country in the history of the world. It's a remarkable economic achievement that they have unleashed in China. And it was an economic achievement that the United States firmly supported. We believed in America that the rise of a free market economy would lead to the rise of a liberal democracy. It was an explicit calculation that happened in D.C. that didn't actually happen to happen in reality. So it's important to recognize that this was the goal of the United States, was to see the economic rise of China, hoping it would push it towards a liberal democracy.

It didn't happen. The economy rose, did not become a liberal democracy. Having said that, today China is a powerhouse in research and development in a broad number of fields, fields that are very important to the future of all of us around the world. And so long as we're able to maintain a constructive relationship and we can share the best technologies that our two countries and all the countries around the world develop and build, there's an opportunity for gain. Right now, we have, in some sense, a very muddled relationship. And it's almost as if we're trying to maximize the opportunities for mutual pain. And that's a difficult place to be. It makes the Chinese wary of trusting the United States.

It makes the United States wary of trusting China. And there's just a lot lost in that equation.

It would make sense if what the United States wants to do is make an enemy of China.

I don't want to make this a U.S.-only is going after China. It's a two-way street. The Chinese supporting Russia's ability to wage war in Ukraine doesn't play well in the United States of America. There's room for both countries to take definitive acts to turn the temperature down. If it's a Cold War, it's to turn the temperature up, but to improve the relationships and the dynamic between our two countries.

Ken, Qatar is playing an instrumental role in the peace talks or the effort to create peace, as it were, between the Israelis and the Palestinians and to resolve the situation in Gaza and with respect to Hamas. You've been outspoken about the pro-Palestinian protests back in the United States. They roiled university campuses. You've been particularly critical of your alma mater, Harvard. Here's my question to you. When people here in the Gulf region, and across the globe for that matter, see the chaos at Harvard or Columbia or USC or MIT, and police in combat gear moving to clear encampments, how do you think that shapes their view of America?

Not well. Not well. And what is lost is that what's happening on campus is not, is not free speech, it's anarchy. You know, at Columbia, when they storm a building, they vandalize a building, they're destroying property, and then they ask for humanitarian aid, which is the greatest of all ironies. It's just the wrong... It is the wrong dynamic that we're seeing take place on American campuses. These are students, most of these students on campuses are trying to learn, they're trying to have an education, and the universities should be really trying to encourage a constructive debate between the students of different backgrounds, whether they're from the Middle East, whether they're of Jewish origin.

It's really important that the generation that will be the generation that runs the world in 40 years tries to learn from this horrible moment in history. And we're not fostering that environment on campuses today. And it's really—it's a huge, huge disappointment that so much of what we see on campus—you've seen the video footage of the kids interviewed. 'Why are you here? What are you protesting about?' Often, they can't even answer basic questions about what's happening in the region and why it's taking place.

Ken, people here, and I suspect those watching us around the world, are eager for your insights into what might happen during and after the U.S. election. How might U.S. foreign policy and defense policy change if Donald Trump were to return to the White House?

So, if President Trump returns to the White House, I think you'll see a global perception of a stronger America. Now, the Biden administration's foreign policies—the actual policies—are, generally speaking, thoughtful. But to be blunt, America does not exude credibility or strength in its actions around the world today. Our positioning does not match the thoughtfulness of our policies. That's a very difficult place to be in a world which has the geopolitical crosscurrents that we spoke about earlier. And it means that those who are willing to push to see how far you can push America are willing to push harder than we want to see happening. And I think that anybody who knows President Trump knows that is not somebody you just push to see what's going to happen.

That's the wrong strategy with President Trump. And so I believe that President Trump will have very good people in foreign policy and in the Department of Defense. But I think he will exude a level of strength that will help to stabilize the world in these very, very trying times.

There has been flagging support for aid to Ukraine in the Republican Party. Would Donald Trump abandon Ukraine?

No, he will not.

You're certain of that?

Well, this goes back to my earlier statement. You could never be certain about President Trump. And that's part of the reason that he is more intimidating to our adversaries. You never know exactly what the response is going to be. But knowing a number of people that he's close to and having actually brought this topic up, I think that President Trump feels he can find an off-ramp towards peace by reaching across to Putin and to the Ukrainian leadership. I believe he knows it's important to American interests that we do not abandon the Ukrainian people at this very difficult moment and that we keep Russia's territorial ambitions in check. And a strong pushback against Putin will be part of the equation, if need be, to secure the peace in Ukraine.

What do you think he'll do with economic policy? That's difficult to know. So, neither administration gives me comfort in terms of a willingness to reduce federal spending. But I have no doubt that a Trump administration would be far less oriented towards regulatory overreach and far more thoughtful about the role of the U.S. government in the day-to-day U.S. economy. One of the reasons that American voters are so unhappy right now is inflation is out of control. And inflation is out of control because of the expansive government under the Biden administration, the rate of spending, and the degree of intervention in the economy. It's causing energy prices to be higher. It's causing the cost of manufacturing to be higher.

It's impacting every part of the economy in a way that the American voters are frustrated about. President Biden doesn't understand you need to break the back of inflation to give people the sense of economic security.

We have talked in the past about America's tendency, shall we say, to spend more money than it generates in tax revenue. And you have warned, Ken, of some catastrophic consequences if deficit spending isn't brought under control. What is the catalyst for an American debt crisis going to be?

So, I don't know what that moment will be when there's an auction that goes awry or when the markets become dislocated. Financial markets, generally speaking, work very well until they catastrophically come off the rails. You don't necessarily get a lot of warning that there's about to be a big event. The crash of '87 is a great case study. You know, that day I woke up, I was in my dorm room trading then, and the stories of the day were about a small skirmish in the Middle East of, frankly, no consequence, and the health of First Lady Nancy Reagan. And yet we ended that day with the stock market down 20-some percent and a number of American institutions literally on life support or near death.

Happened in one day. One day. There was no big story that morning that would make you think that that day might have been the end of the U.S. capital markets as we knew them. There was no warning. And so I worry that the debt crisis may have a similar construct, that there'll simply be a day where a major auction fails, and then you see a panic start to brew in the Treasury market. And the question will be, how fast will the Fed intervene? What panic will that induce? Because government intervention under duress often just creates more panic. And then do we see a flood of Treasuries coming back into the market from holders around the world? It's a frightening prospect. It is.

Back to politics for a moment. You've been a prominent donor, I would say, to Republican candidates. I'd like to know, how are you going to spend your money? How are you already spending your money ahead of the election in November?

So, I have been a significant supporter of Republicans that stand for personal freedom, national security, and economic soundness in the United States. That has been a big focus of mine in this primary election, or this primary cycle. I want to see people in the House and in the Senate that represent the best of American values and backgrounds that prepare one to serve in public service. In the last election cycle, I supported a number of people who were veterans, and who are now serving our country in the House, and they do it with the pride that our country deserves, and they do it with the integrity that our country needs. So, I've been very focused on finding candidates who I think represent the best of American values to be part of the future of the Republican Party.

People probably want to know, have you donated to Donald Trump's campaign, either directly or indirectly, to a PAC or a super PAC? I have not. Will you? I'm going to wait to see who he picks as his VP candidate.

Is there anyone whom you'd like to see him pick as his VP candidate? You know, I don't... This is, again, like poking the bear. Not sure which way my recommendation goes in terms of helping that person's prospects. I think that's...

Wise position to take. Before we finish, Ken, this region is blessed with resource wealth and, as a result, sovereign wealth, so much so that pretty much every major asset manager in the West sees the Gulf as something of a honeypot and is trying to raise money here. As someone who isn't raising money here, how would you advise the sovereign wealth funds in the Gulf region to maximize their negotiating leverage?

So either I'm going to be excommunicated from the circle of my fellow money managers or never invited to come back to the Middle East again. Is that the position you're putting me in? So look, here's what I think is important to think about. I think alignment between the interests of the money manager and the sovereign wealth fund are very important. And I think it's more important to have your money entrusted with a firm that is going to act continuously in your best interest as an investor than it is to try to pick somebody who simply has the lowest fees or some other superficial demarcation of being open and transparent. I mean, let's be clear, your money managers who have really important intellectual property aren't going to be unduly transparent.

They're trying to protect their very intellectual property that they'll share the benefits of with the client. Simply put, Coca-Cola doesn't publish its recipe on the web. So I think it's very important when you find a money manager, you're really asking, what's their competitive advantage? What's their culture? How aligned are they with me? And in both the good moments and the bad moments, are they going to put themselves in the shoes of their clients and make the right decision by their clients? At Citadel, I take great pride that almost over 20% of the capital in our hedge funds is the capital of the partners and the team members at Citadel. We wake up every single day as co-investors with our capital providers.

And I think that symbolizes what I would think about looking for if I were a member of the sovereign wealth community here in the Middle East. One last thing. Among the many distinctive qualities that Citadel is—just by the way, when you're going to go pick a brain surgeon, do you find the doctor with the lowest fee? That's not what I would do, no. Right, so you want to find somebody who actually has pricing power because other people perceive them to be good. It says something, yes. There's something to be said for that.

I was just going to say, because I think it would certainly interest people in this room and elsewhere in this part of the world, one of the things that Citadel is known for is how seriously you and your colleagues take the search for extraordinary talent. A number of investment firms have opened offices in this part of the world, whether it's in Doha, whether it's in Abu Dhabi, Dubai, for example, or Riyadh. Have you thought about expanding here?

Well, we actually just recently did an analysis of our competitors' footprints in a number of these cities as we tried to think about what is our strategy here in the Middle East. And you landed on the right issue. It's about talent. And when we think about our Middle East strategy, we're going to think about where are we going to draw the greatest amount of talent, both from the domestic country and from the international community. Too often, countries try to attract talent by having very attractive tax attributes. That tends to draw in a handful of senior PMs, but doesn't draw in the analysts and the associates who do the day-to-day work that's required to be successful in the markets. One of the reasons that I think Citadel has been so successful is the intense collaboration that we have within our four walls.

A PM working side by side with an analyst, with an associate, working through a problem. Having a PM located in a low-tax jurisdiction, on Zoom intermittently with a team back in London, that's not a winning formula. So when we think about where we're going to be in the Middle East in terms of our footprint for human capital, it's going to be about a holistic solution where we've got people who are in the region integrated tightly with PMs who are here. The whole team is here and successful as a team.

It explains a lot. Ken, thank you very much. Ladies and gentlemen, please join me in thanking Ken Griffin.