(Bloomberg) -- Ken Griffin has encountered multiple challenges since founding Citadel three decades ago, including the 2008 financial crash that came close to imperiling his firm. Now, the world is facing a very different order of threat with Russia’s invasion of Ukraine.
Griffin spoke on Friday in Chicago for an episode of “Bloomberg Wealth with David Rubenstein” about the fallout in markets, the negative ramifications that current U.S. sanctions are likely to have on American technology firms and the dollar, and the importance of ending Europe’s energy dependency on Russia.
Markets are at a “very volatile inflection point,” he said, adding that the prospect of Russia positioning itself to reach beyond the borders of Ukraine would be “terrifying.”
Griffin, 53, also discussed how his experience at Harvard University helped turn a passion for mathematics and software engineering into one of the most successful businesses on Wall Street.
One million dollars invested with Citadel’s funds when Griffin founded it in 1990 would yield about $235 million today. Investors who have been with him for “virtually the entire journey” are “pretty happy,” he said.
Griffin has pulled off the rare feat of building a second dominant business: market-maker Citadel Securities, which in January announced its first outside investment — worth $1.15 billion — from Sequoia Capital and Paradigm. That valued it at about $22 billion.
He’s also increasingly been in the news for his exploits outside of Wall Street. Griffin gave $20 million to a Republican candidate for governor, bought a rare copy of the U.S. Constitution at auction for $43.2 million — beating out a crypto-funded bid in the process — and described the rush to embrace cryptocurrencies as a “jihadist call” against the U.S. dollar (His view on digital currencies has since evolved).
Griffin — who grew up mostly in Florida and went to public high school in Boca Raton — also spoke about the prospect of Citadel Securities going public, the leadership of the Securities and Exchange Commission and the best advice he’s received.
For more insights from the biggest names in investing, watch “Bloomberg Wealth With David Rubenstein.” Griffin’s interview airs March 22 at 9 p.m. ET. The following below has been condensed and edited for clarity.
Markets plummeted with the Russian invasion of Ukraine. At the end of the day, to the surprise of many people including me, they actually ended up a bit. How could that have happened?
People don’t often appreciate how forward-looking financial markets are. When a company announces a great quarter and you see the stock price fall, people go, `Well, how did that happen?’ It’s because investors had anticipated an even better quarter.
This year, we’ve seen markets solve quite a bit up to the date of the invasion of Ukraine: anxiety about higher interest rates, worries about the war. As the war broke out though, the narrative changed.
We started to talk about lower interest rates for longer. We started to talk about how different governments were going to react to this, vis-a-vis Russia and the scope of the sanctions that would be unfolded. The consensus over the course of the trading day was that the worst news was behind us. And the prospect of easier monetary policy and less Draconian sanctions than feared created a relief rally.
Do you expect that these gyrations will continue as long as Russia is in Ukraine?
No, I think we’re at a very, very, very volatile inflection point. And it will come down to whether or not the Russians will be satisfied by simply extending their effective borders in Ukraine. Will they take Kyiv? Will they position themselves to reach beyond the borders of Ukraine?
The last is terrifying to markets. They’ll be adjacent then to much of core Europe if they move their military onto the western border of Ukraine. And that has markets concerned. So, much will unfold over the days to come or weeks to come as Russia’s ambitions become clearer.
You and Niall Ferguson wrote in the Wall Street Journal that U.S. sanctions on Russia might have some deleterious effects on the U.S. and particularly energy markets?
Europe is way too dependent upon Russian gas. They’ve heightened their dependency by their rapid embracing of green policies. Now to be clear, the world heading towards a lower carbon footprint is really important to all of us.
The question is, how do you get to that place, and how fast do you get there? Europe became incredibly dependent upon Russian gas, given their speed of trying to reduce carbon emissions.
The Europeans are in some sense victims of their own policies. They can’t retaliate against Russia in any meaningful way because they are completely dependent upon Russian gas. The money they send to Russia every day in buying that gas has given Russia incredible financial flexibility to fund the very war that’s happening.
If we want to send a message to Russia that their behavior is intolerable, making it clear that we will end this energy dependency is really important.
Let’s contrast that with what we’re doing. We’re imposing sanctions on Russia and limiting their access to U.S. technology, much as we’ve done with China. What’s the upshot of that?
We are hurting one of the leading parts of our economy, which is the big tech firms of the Valley that have driven so much prosperity for our country. We’re forcing China to develop its own processors, its own software stack, and to be independent from America.
They’re going to take those solutions and push them across their sphere of influence. So it’s going to be much harder for Apple or Google or Microsoft to have a big success story in emerging markets like Africa, where China’s going to now export their technologies aggressively.
By putting sanctions on American technology vis-à-vis Russia, all we’re doing is accelerating that event. Although American sanctions may feel good in the short run, they are really hurting one of our critical success stories in the world, which is our ability to develop technology.
The second one is the United States’s weaponization of the dollar. The U.S. dollar is the reserve currency for the world. That’s an incredible asset for our nation, particularly as it faces record levels of indebtedness.
When we put on the table the possibility that your dollars will become seized, or you can’t move dollars, we’re telling the rest of the world to embrace other currencies in their portfolio and we diminish the value of the dollar as the reserve currency. American taxpayers are going to pay for this in the form of higher interest rates on our debt. It hurts our country in a profound way.
Recently you sold a stake in Citadel Securities to Sequoia and Paradigm, a cryptocurrency-related firm.
I and roughly 50 people own both Citadel Securities and the hedge fund. What makes us different from many partnerships is that virtually the entire firm is owned by people who are here today. So our retired partners over the years, we’ve bought their interest back to keep the firm owned by those who are active and engaged in the business today.
For us, the opportunity to work with Sequoia, to have Sequoia as an anchor investor in Citadel Securities was an incredibly compelling proposition. As you and I both know, Sequoia’s had some of the great success stories in American technology, whether it be Apple or Nvidia or Google. To have their expertise, helping us think about positioning Citadel Securities for the next two or three decades has been a really powerful opportunity that we availed ourselves in.
Should anybody think that Citadel Securities might go public?
That’s a reasonable assumption. One of the ingredients that Sequoia brings to the table is helping my management team really understand as a public company what will be different than how we run our business today as a private company. And of those differences, some will be positive, some will be negative. We need to understand those differences and embrace them if we’re going to go public down the road.
The other partner that you sold a stake to was a cryptocurrency-related investor. You haven’t been trading or making markets in crypto. What about the future?
Crypto has been one of the great stories in finance over the course of the last 15 years. And I’ll be clear, I’ve been in the naysayer camp over that period of time. But the crypto market today has a market capitalization of about $2 trillion in round numbers, which tells you that I haven’t been right on this call.
I still have my skepticism, but there are hundreds and millions of people in this world today who disagree with that. To the extent that we’re trying to help institutions and investors solve their portfolio allocation problems, we have to give serious consideration to being a market maker in crypto. It’s fair to assume that over the months to come, you will see us engage in making markets in cryptocurrencies.
It hasn't been straight up for the 30 years or so. Sometimes you've had some bumps?
I would describe the 30 years as having had a few speed bumps. And then the moment in 2008 where the car basically went off the cliff. And we've all had moments in our careers which are those existential moments of, ‘Will we make it through this moment in time?’ And ’08 for us was that moment in history.
But you made it through and haven’t looked back?
What’s really important to run a successful firm is to have ownership of what has gone wrong so that you can really take a step back and be objective and learn from the experience. And then to embrace what has gone right and to try to understand how much of this was a fortunate outcome, how much of this was a particular research process.
Who makes the actual trading decisions? Are you the person that makes the final decisions?
There are about a hundred different portfolio managers who are each with their teams trying to ascertain opportunities for which we can deploy capital in the financial markets. I have a bird’s-eye view of what’s taking place across the hundred portfolios, along with my co-chief investment officer Pablo Salame. Together, the two of us are thinking about how we’re risk aggregating, where are we seeing the best opportunities, how do we allocate capital. But really, the secret to our success is this distributed, decision-making model, where people who are closest to the information, and who have the deepest expertise, are making the calls in real time.
Gary Gensler, the head of the SEC, has said that he thinks that maybe some of the market makers aren't doing the best job for their customers. Do you have any view on that?
I really believe that American investors are just incredibly fortunate. We have the most liquid, competitive market in the world. The SEC is a big part of that success story. So if you go back in the history of the U.S. financial markets, we went to a paradigm of multiple listings, stocks that could trade on multiple exchanges, they could trade on exchange and off exchange, which led to an incredibly competitive environment.
The upshot of this is that today, investors in America have some of the lowest transaction costs in the world and are able to manage vast sums of money and to have liquidity to transform their portfolios almost instantaneously. So I actually think that Gary’s doing a disservice to the history of the SEC, which so brilliantly embraced competition, to unleash for American investors what is really the best market in the world to invest in.
One of my partners Glenn Youngkin, who was with our firm for many years, he ran for governor of Virginia and was elected. Have you thought about running for office yourself.
I’m really excited that Glenn is governor of Virginia because he cares about issues that are really important to me: for example, education, public safety. I really hope that Glenn will be a leader who will lead from the middle, who will take the state to a better place and will be a roadmap for success in America. I really wish the new governor great success in his new role. Personally, I love my work. I have three young children. I’m not interested in pursuing a career in politics at this moment in time.
Recently, you got a fair amount of attention for buying a rare copy of the Constitution at a record price. What led you to want to buy that Constitution and what are you going to do with it?
The Constitution of the United States is one of our most sacred documents. Beautifully written, it encapsulates so many principles and ideas that are important to you, to me, to the 12 million Americans who came through Ellis Island.
It’s the foundational document of the American dream. I hope that by having the opportunity to be the steward of this document for the rest of my life, it’ll be shared across our country in various institutions. It’s going to Crystal Bridges first where it’ll be available, free, on display. I’m sure a million people will see it over the course of the next year.
I hope it gives children and adults a chance to really think about how incredible the American experiment has been. The founding fathers, 250 years ago, changed the history of mankind and many of those changes are encapsulated in the Constitution.
As you look back on your career, what would you say is the best investment advice you've ever received?
Probably the best investment advice that I never received but that I’ve lived my whole life around is surround yourself with really good people. What makes a great investor? A great investment firm is comprised of people who are optimists and pessimists and realists.
Because in the intersection of the debates that go across that wide range of personalities is where you find truth. It’s part of the reason I’m so focused on freedom of expression.
What do you do for relaxation and exercise?
One thing that surprises people? I love to play “Call of Duty” and I’ll play it while I’m on the elliptical trainer. Takes a bit of work on balance to do both at the same time; maybe a bit of multitasking. But I’m always trying to find ways to stay in shape and to stay engaged.