When the richest person in Illinois shares his opinions about the economy and stock market, it's worth listening – especially when you consider what's been going on this week.
Ken Griffin, founder and CEO of hedge fund Citadel, who has an estimated net worth of $8.5 billion, recently posted online an open letter to the hedge fund's investors that outlines his views on 2018's economic landscape and more. He's worried about some "dark clouds" on the horizon and Griffin, like Omaha, Neb.-based superinvestor Warren Buffett, usually knows the score.
Maybe it's a Midwestern thing.
Via a Citadel spokeswoman, Griffin declined to discuss the issues raised in his letter. Nevertheless, let's try to unpack what Griffin said because it concerns not just his clients but many of us who aren't.
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Citadel's chief is pretty upbeat about this year's growth prospects. However, Griffin is wary of some looming problems, particularly rising inflation and "a heightened level of geopolitical risk" that could involve trade clashes or even military confrontation, his letter stated.
Griffin is simpatico with President Donald Trump's agenda of slashing industry regulations and backing a mammoth tax law cutting the corporate rate to 21 percent, from about 35 percent. He's also in lockstep with the parade of corporate CEOs and business interests that believe Trump's plan is a pathway to robust commercial expansion and fatter profits. Griffin has long pushed back on some government attempts to regulate the hedge fund industry.
"In the United States, a pro-growth regulatory environment and a sweeping tax reform bill have fueled optimism in the domestic economy," Griffin wrote.
Griffin isn't so sanguine that he doesn't see the prospect of trouble or disruption ahead.
He's concerned the U.S. and "many countries around the world" are showing early signs of accelerating inflation, which may help to depress corporate earnings and stock prices. Citadel is factoring in the possibility of any inflationary shock in its investment analysis, Griffin stated.
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The company has assets of $27 billion under management and five major investment funds. Last year, its flagship Wellington fund delivered a 13 percent annual return, which was solid but lagged behind the broader Standard & Poor's 500 index's 19 percent gain. Since its 1990 inception, Wellington has posted an average 19 percent annual return, according to industry data.
Meanwhile, Citadel is keenly watching for signs of global disruption, "including a trade policy misstep or military conflict," according to Griffin's letter. Again, the Citadel CEO didn't put a fine point on his concern by identifying specific hot spots.
But it wouldn't be startling if Griffin, like other business chiefs, is alluding to a possible trade war with China, the largest buyer of U.S. debt. And perhaps the threat of a shooting war with North Korea.
In his letter, Griffin vowed to relentlessly recruit more whip-smart financing types to his firm. Citadel employs around 950 people locally and 2,200 worldwide.
In an industry where computer algorithms – which were blamed for much of Monday's historic 1,175 stock point drop – are often seen as the emerging backbone of investment picking and trading, Griffin stresses the need for more human analysis and problem-solving. Asked at a recent conference if robots were going to take over trading in 10 years, Griffin's quicksilver response: "Not a chance."
Griffin, who started his hedge fund in 1987 from a Harvard University dorm room with a $265,000 stake, is pretty well-known in Chicago. But it wasn't always that way.
In 2005, I wrote a Chicago magazine story about Griffin becoming a rising star in the city's commercial, cultural and charity scene. At the time, it struck me was how many top-shelf business and civic people didn't know much, if anything, about Griffin. With his business and personal fortune growing, Griffin was only starting to make his mark on the city's cultural and civic life.
Armed with massive wealth, Griffin has built a reputation as a local philanthropist, funneling millions of dollars to Chicago's art museums and other institutions. Recently he donated $125 million to the University of Chicago in support of its economics department.
In late 2016, Griffin gave Chicago a $12 million gift to complete the creation of two separate bike and pedestrian paths along the 18-mile Lakefront Trail – that he regularly used – and shortly after this donation gave another $3 million to build 50 soccer fields across the city.
Obviously, the richest person in Illinois is good at spreading and enjoying his wealth, which includes paying an eye-popping $58 million for a Chicago penthouse – the highest local price ever paid for a residence – and assembling an art collection that includes expensive French impressionist masterpieces.
Yet as Griffin's letter indicates, even a multibillionaire can fret about a shifting economic landscape.