Citadel separates hedge fund, market-making units

Feb.04, 2008 in Market Outlook

SAN FRANCISCO (MarketWatch) — Citadel Investment Group has separated its market-making unit from the firm’s hedge fund business, according to a recent regulatory filing.

Citadel Derivatives Group, one of the biggest listed options market makers in the U.S., used to be affiliated with Citadel’s main hedge fund business through two units, Citadel LP and Citadel Wellington LLC.

But starting this year, the Chicago-based firm created a new operating unit for the market-making business that’s owned by Citadel Derivatives Group Investors LLC and CLP Holdings LLC, according to a Securities and Exchange Commission filing from Jan. 18.

Citadel, one of the largest hedge fund firms in the world, was started by Ken Griffin in 1990 with $4.6 million devoted to convertible bond arbitrage. The firm now manages more than $15 billion in assets and focuses on many different strategies including energy trading, reinsurance and emerging markets.

Citadel has also expanded beyond trading. In addition to options market making, the firm offers administrative services to other funds through Citadel Solutions and runs Citadel Alternative Asset Management, which invests in other hedge funds. The administration and funds of hedge funds businesses were launched in early 2007.

With such a wide array of different businesses, Citadel is beginning to look more like a financial-services company, rather than a hedge fund. That’s sparked speculation the firm may do an initial public offering, joining other alternative investment firms such as Fortress Investment Group FIG . A Citadel spokeswoman declined to comment on Monday.

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