Ken Griffin’s Citadel is on track to defy a sluggish year for commodities trading across Wall Street, burnishing the hedge fund’s image as a dominant force in the asset class.
Citadel’s commodities business generated about $4 billion of profit this year, driven by natural gas trading, according to people familiar with the matter. That puts it on track to rival last year’s performance.
The firm’s flagship Wellington fund gained about 13.2% this year through November. A spokesperson for Citadel, which managed $65 billion as of Nov. 1, said the firm doesn’t comment on its performance.
Trading profits, particularly in energy, have been muted across the industry as an extended period of volatility following the pandemic and Russia’s invasion of Ukraine has begun to subside.
The slowdown is taking a toll on firms such as Glencore Plc and Gunvor Group, as well as hedge fund boss Pierre Andurand, who ditched oil trades earlier this year for bets on copper and cocoa.
The profits at Citadel’s commodities unit extend its positive run. It generated more than $4 billion last year and roughly double that amount in 2022.
The crude and fuel trading business has encountered some challenges this year, with the departure of portfolio manager and fuel trader Drew Beaver as that Houston-based team’s performance faltered. But strong gains in natural gas trading in Europe and North America ended up boosting profits, the people said, asking not to be identified discussing private results.
Citadel is uniquely positioned because of its merchant trading group, Citadel Energy Marketing. The unit, led by former Morgan Stanley commodities chief Jay Rubenstein, has been a key source of profits in recent years as it encompasses physical trading such as storage and transportation. The business also includes weather derivatives and modeling, which can be crucial tools for natural gas trading.
Citadel’s success in navigating physical and financial commodities markets has prompted a flurry of competitors to follow suit. Balyasny Asset Management and Jain Global are among the firms building physical businesses to boost trading profits.