Intro:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you are Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision and global business, the dream drivers that have made the NYSC and indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE House exchanges and clearing houses around the world. And now, welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
I've been attending the annual conference of the Futures Industry Association at its perennial home in Boca Raton, Florida, on and off since I joined ICE back in 2018. As I power up our microphones for another set of podcasts from this tranquil spot, it's impossible not to reflect not only on the dramatic changes in the financial services industry since then, but also the stunning changes in South Florida itself over just six years. The FIA was founded back in 1955 in New York as the Association of Commodity Exchange firms. It was established back then to discuss issues, work with exchanges, study ways to reduce costs, eliminate the abuse of credit, and also to protect firms from fraudulent receipts.
One of our first episodes in our archive of now over 400 Inside the ICE House Sit Downs was with FIA President Walt Lukken, recorded right here in Boca Raton back on episode 9. And you can still find Walt roaming the cloisters of the Boca Raton Club overseeing this international gathering of luminaries of the futures industry.
Addison Mizner, the renowned architect and master planner of Boca Raton, designed and opened this place 98 years ago, February 6th, 1926, imbuing it with his signature Mediterranean and Spanish revival interpretations that adorns so many of his structures from Palm Beach to Casa Bienvenida in Santa Barbara, California. Back during World War II, the US Army co-opted the property as a dormitory for the Boca Raton Army airfield, leading officials to dub it the most elegant barracks in history. After a series of owners, Michael Dell bought the place in 2019, investing $75 million to ready and refresh the Boca Raton for its next century of service here along the Atlantic Coast.
Another pioneer investing big in the next century of South Florida is our guest today, the man I'm sitting across from, Ken Griffin, the founder, CEO and co-chief investment officer of Citadel. That's the firm he started in 1990, spawned from Chicago's Glenwood Partners with $4.6 million in capital, which as of March 1st, 2024, reports 59 billion of investment capital, making him the most profitable hedge fund manager of all time based on net gains since inception. (Source: LCH Investments NV estimates, Great Money Managers by Net Gains since inception to 12/31/2023).
Now when you hear the name Citadel, it's actually two firms on our radar at ICE and the NYSE. The first is the hedge fund Ken built on the modest ambition to be, I'm going to quote them here, "the most successful investment firm of all time." The second is Citadel Securities, a fixture on the floor of the New York Stock Exchange with market makers like Pete Giacchi belting out indications during the price discovery process of our biggest IPOs. Citadel Securities was formed in 2002 to provide institutional and retail investors with liquidity that they're going to need to trade all sorts of equity and fixed income products in all market conditions. Our conversation with Citadel's Ken Griffin on markets making bets on talent and making a new home here in Miami and his round trip journey in the world of investing from Daytona to Cambridge to Chicago and back here to the Sunshine State, it's all coming up right after this.
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Josh King:
Welcome back Inside the ICE House. Remember to subscribe to the podcast wherever you listen. And please rate and review our work on Apple Podcasts so other folks know where to find us.
Now I'm sitting across the table here at the Boca Raton Club at the Futures Industry Association Annual Conference with Ken Griffin, founder, CEO and co-chief investment officer of Citadel, where I am serving as kind of the bullpen catcher for Ken, warming him up, about to go on stage with my friend, CNBC's Sara Eisen, in a fireside chat on what they are calling perspectives on the markets and the industry in 2024.
The FIA Boca starting lineup is filled with folks I've had on the podcast before, including my boss, ICE founder and CEO, Jeff Sprecher, CME's CEO Terry Duffy, the CFTC Chair Russ Benham, and S&P Vice Chairman Dan Yergin. But in the annals of Inside the ICE House where we've talked with investing pioneers like David Rubenstein and Steve Schwarzman, we've got another ace on the mound and the man wearing the number one on the uniform of the Citadel Hedgers, Mr. Ken Griffin. Ken, thanks for doing this. Welcome Inside the ICE House.
Ken Griffin:
Yeah. It is a great day to be here. Welcome to where I grew up.
Josh King:
I know it's where you grow up and I'm going to talk a lot about that. When Sara gets you on the stage in a couple minutes, she'll likely lead with a question like, "Ken, where's the recession that Wall Street leaders have been warning about?" Last week on Capitol Hill, Fed Chair Jerome Powell said to lawmakers, I'm going to quote him, "There's no reason to think that the US economy is in or in some kind of short-term risk of falling into recession. We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. But the economic outlook is uncertain, and ongoing progress toward our 2% objective for inflation is not assured.”
Josh King:
You agree with the Chair?
Ken Griffin:
Right now the economic data looks strong in the United States. The Fed has done an incredible job of working down inflation without yet strangling the economy. Now the backdrop, of course, is that the level of government spending has been wildly out of control. This very pro-growth, pro-cyclical spending is certainly creating a longer period of economic expansion, but frankly at a pretty big cost to future generations.
Josh King:
Powell added that he expects rate cuts, but inflation progress is not assured. You expressed some anxiousness that maybe in the third and fourth quarters of last year. What's your forecast for the rest of the year, you think?
Ken Griffin:
At present, inflation is still obviously above the Fed's target rate. What we don't understand around the world is the two prong issues of very high levels of government spending, which is pro inflation, unusual at this point in an economic cycle, and then the continued trending towards deglobalization. This of course is also inflationary because you're unwinding the gains that were shared around the world from the comparative advantages of various countries performing different activities in both the markets for goods and for services. You have two really interesting backdrops that are pro inflationary that the Fed is trying to navigate its monetary policy through.
Josh King:
I'm curious what you think of Powell overall in the pantheon of Fed chairs that have been on the job since you started Citadel. We could go back to Greenspan, Bernanke, and Janet Yellen. When Bernanke stepped down from the Fed in 2015, he came to Citadel as a senior advisor. At the time you said, "He has extraordinary knowledge of the global economy and his insights on monetary policy and the capital markets will be extremely valuable to our team and to our investors." What was it like having someone like Bernanke in the locker room and where do you think he stacks up against Powell?
Ken Griffin:
That's a really fun comparison that I've actually never made. Ben Bernanke is clearly one of the academic leaders in macroeconomic theory in the history of the world. He's just a brilliant, brilliant thinker. Powell's background, much more of a pragmatic. This is not his academic bullpen like it was for Bernanke. Very different people, but both of these men have been advised by the great team that we have in the service of our country at the Fed. So both leaders, in making their decisions around monetary policy, get to work with both the other members of the Federal Reserve Board, and of significant importance, with the very, very high quality people that serve our country as economists at the Fed. They help us all think about what are the right monetary policies to pursue as a nation.
Josh King:
Talking about the bullpen, Ken, we are here against the backdrop of spring training here in Florida. Two years ago it was reported that you were teaming up with the Ricketts family, owner of the Chicago Cubs, on a potential bid for the Chelsea Football Club. And here in Miami, Bruce Sherman has said his team is not for sale, talking about the Marlins. But everyone does have a number. Any chance you'd add the Marlins to your Miami holdings?
Ken Griffin:
Well, first of all, the Ricketts are just an incredible family to partner with. I've watched what they've done at the Cubs now for over a decade and change. They've just done a fantastic job managing one of the most iconic baseball teams in America. But without the Ricketts as my partner, I can't see myself as being in a position to ever consider buying the Marlins. It’s just too far away from my wheelhouse of expertise.
Josh King:
Well, you've got a couple interesting comparisons of people who are in that space here in South Florida. You've got Vinny Viola, he bought the Florida Panthers. We've had him on the podcast. David Beckham has a stake in Inter Miami. Micky Arison owns the Heat. And of course Stephen Ross owns the Dolphins.
Speaker 6:
[inaudible 00:10:53] four of six through the air. Nice block by Hunt. He's got Tyreek Hill and hold onto your hex. Down to the 47.
Josh King:
Unless you're talking about the Heat, Miami doesn't really have a sports heritage of Chicago or Boston, but how are those teams contributing to this area's cultural explosion?
Ken Griffin:
The people who live in Miami are really proud of the great teams that we have here. The Heat is one of the best teams in the country. The Dolphins have a fantastic stadium and a fantastic up and coming quarterback. They are a real contender for the Super Bowl over the years to come. I think we have a lot to be very excited about here in South Florida when it comes to sports.
Josh King:
And just to watch the way they're filling up the soccer stadium for Inter Miami, I mean this place is just exploding.
Ken Griffin:
It's exploding. Not only was Inter Miami an incredible team before the events of the last year, but bringing Messi to the States has really just helped the sport blossom across the entire country. Almost as we talk about this, you ca flip the question around Miami is becoming a leader in American sports.
Josh King:
There's no doubt about it. And it's becoming a leader in a lot of things. Another major contributor to the region's cultural explosion is the Norton Museum of Art in West Palm Beach. It was founded by Ralph and Elizabeth Norton in 1941. Like you, Ralph made his fortune in Chicago. He led Acme Steel. You added to the Norton Collection with Mark Rothko's No.2, Roy Lichtenstein's Ohhh...Alright... And De Kooning's Interchange along with Jackson Pollock's 17A. Ken, I've heard you say that 700,000 people a year get to see your collection at the Art Institute of Chicago. What's your metric for the number of people that the Norton is going to draw with your art on the walls?
Ken Griffin:
More importantly, the Norton is becoming a major cultural destination for the entire southeast United States. Not only has my art had an impact on making that a reality, but we're seeing the entire community in Palm Beach and in greater South Florida really rally around the Norton. And that's so much fun to see, us collectively put this museum on the map as a major United States cultural institution in the fine arts.
Josh King:
When you walked in that building for the first time and you said, "I could make a difference here," what went through your head?
Ken Griffin:
Well, I've actually seen the Norton for a long time having grown up here in South Florida.
Josh King:
Yeah, exactly. Right.
Ken Griffin:
But I had a chance to walk the construction site that was being built for Norman Foster's vision for the future. To be on that construction site, with the head of the museum, and to see the boldness of that vision was inspirational.
Josh King:
In addition to people like Norman Foster building beautiful additions to museums to make a region really hum, you need effective government to make a region work. We're scheduled to talk on this podcast with Miami-Dade Mayor Daniella Levine Cava for an episode. While you are better known for supporting Republican candidates, you've spoken admiringly about her. A couple of days ago, she asked for a $2.5 billion bond to help finance affordable housing and improve the county's infrastructure, parks, sewage and roads. What else is needed to sort of perfect this puzzle here in South Florida? The mayor's up for reelection in November. Does she deserve another term to finish the job?
Ken Griffin:
Look, we struggle with the challenges that go with success. People want to come here with their families and build a future for themselves here in South Florida. We struggle with capacity on our roads, we struggle with affordable housing. And I give the mayor real credit for having an incredibly pro-business, pro-community mindset in how she approaches and takes on problems. It's really wonderful to sit down with somebody who is so focused on how does government serve the people of South Florida, and what can she do in service of those whom she represents. It's inspirational to see that in someone, their sense of commitment to the greater public good. I will almost certainly be supporting her when she runs for election again. She's a real leader.
Josh King:
Regarding other mayors, Ken, Brandon Johnson has served as Chicago's 57th mayor for just under a year, succeeding Lori Lightfoot. You endorsed Paul Vallas, the Democrat in the Primary following your support from my old White House colleague, Rahm Emanuel when he ran the Windy city. Mayor Johnson said a couple of days ago that he's going to go ahead with plans to spend a billion dollars to breathe new life into the LaSalle Street corridor. Citadel has moved its headquarters down here, but you still have a lot of folks back in Chicago. Is Johnson proving to be more like Rahm or Lightfoot?
Ken Griffin:
The great thing about living here in Miami is I can focus on the future. The vast majority of our colleagues from Chicago have chosen to either relocate their families to Miami or to New York. People vote with their feet. It's just that simple. Chicago is going to need a lot more than a billion dollars spent on LaSalle Street to turn its problems around, and I'd like to believe that a future mayor in Chicago will make that happen.
Josh King:
Talking about people voting with their feet, Ken, March 2020, the pandemic shut down the New York Stock Exchange trading floor, keeping people like Citadel's Pete Giacchi away from his trading post and thousands of other financial workers out of their offices in New York and Chicago.
A headline in the New York Times from April 7th, 2020, read No trading floor, no problem. A financial firm quarantines at the Four Seasons. Now, the NBA established his bubble in Chicago. Mike White filmed the first season of White Lotus at the Four Seasons in Maui, and you did the same in Palm Beach. Talking about a quote that Zia had at the times, your spokesman Zia Ahmed, he said, "Consistent with our position as one of the largest market makers globally, we believe this business continuity decision is prudent to continue providing liquidity to our retail and institutional clients." Bring me into the huddle for that decision. How'd you make it and how does it feel now several years on?
Ken Griffin:
There's a lot in that question. To be clear, the day that they closed the New York Stock Exchange was a heartbreaking day.
Josh King:
Yeah, for all of us.
Ken Griffin:
So much good happens on the floor of the New York Stock Exchange. We all got to watch the opening print of Spotify with a smile that something new had happened with the first direct listing.
Josh King:
Absolutely.
Ken Griffin:
To see the transparency and openness of the New York Stock Exchange floor and how that engenders investor confidence is just such a powerful part of our capital market story. But in the pandemic, we lived in a different world and we had to take steps to ensure that we could continue to provide liquidity to institutional and retail investors here in the United States. We chose to open a facility in Palm Beach for a number of reasons, one of which is that viruses in general are less transmissible in a high-humidity, high-sunlight environment. Take out a map of the United States and you end up pretty quickly focused on South Florida as a destination for where you're going to move people to in a moment where you're trying to manage the health considerations of your team.
And this is where Florida is a special place. In five days, we built sufficient technological capacity to have handled the entire order flow of the US equity market. We could have integrated with the major exchanges like NYSE and been there to provide liquidity to meet the needs of the entire market. Can you imagine anywhere else in the country being able to do that in five days?
Josh King:
Nope.
Ken Griffin:
It's just a different world here. I give credit to Governor DeSantis. I give credit to the leadership of Palm Beach County, to the city of Palm Beach. Everybody realized that we had a national emergency to deal with, and everybody stepped up to help us do what we needed to do to create that resiliency in the US capital markets. Now, the good news is we never needed that. The good news is the strength, the NYSE community, is so powerful that even the middle of a national crisis, other firms were able to rise to the occasion and the markets in our country functioned pretty much flawlessly throughout the entire pandemic. It’s a real testament to everybody at Team NYSE and the community that you have around you.
Josh King:
You must have been learning a lot of lessons as that went down. I mean, the big announcement came two years after that June of 2022 headline from Reuters, Hedge fund Citadel to move headquarters to Miami from Chicago. And you wrote in a memo to employees, “Miami is a vibrant growing metropolis that embodies the American dream.” Ken, for many millions, Chicago also a place that embodied the American dream. After all, that’s where Frank Meyer staked you with a million dollars of Glenwood Capital right out of Harvard in ‘89. How difficult was it to make that call?
Ken Griffin:
I would say one goes through months of soul-searching before making that call, maybe even years, when you’ve spent three decades of your life committed to building a business in a city. My colleagues, and I’m so grateful for this, were so invested in Chicago’s community, in the schools, in the political sphere, in helping to have a more economically vibrant community for all. To watch that undermined by the changing political landscape, and an agenda that was no longer about extraordinary schools or safe streets, that agenda was gone. To see that transformation happen before our very eyes was heartbreaking.
When you get to that moment where you say, "We're moving to Miami," I will tell you this, from the day after I moved here, I've never looked back. It is so great to be in a city that once again represents what I as an American aspire to, which is about a brighter tomorrow. It is so great to be out with your friends and to talk about what you're going to build, what you're going to create, what you’re going to make happen. That was the ethos of Chicago in the 1990s. It's really great to be back in a city where that's the ethos of the people as a whole.
Josh King:
So given that ethos, the Wall Street Journal reported last week that Citadel selected Foster + Partners. You mentioned Lord Foster a minute ago about the Norton to build the new headquarters in Miami. What struck me was a note that there'd be a hotel built into the top of that building. When I worked at Willis Group about 10 years ago, Lord Foster designed that building at 51 Lime Street in the city. It had a hotel built in the middle of it. So is your decision on Norman Foster an admiration for his work?
Ken Griffin:
Foster + Partners is one of the great architectural firms in the world. They have built some of the most important skyscrapers ever built. And we're trying to build the workplace of the next century. Whether it's here in Miami or a building that we're contemplating in New York City, we're really trying to create environments that people want to go to the office and be a part of. We're really proud of the fact that our team around the world is in the office five days a week. We want to make sure that we have an environment that maximizes collaboration, where people feel and are safe and secure, where people feel they can do their absolute best work with their fellow colleagues at Citadel. Foster + Partners has put an enormous amount of effort into understanding how to create collaborative work environments where people can prosper and flourish.
Josh King:
On that score, you recently hired Paul Darrah from Alphabet as your chief workplace officer. I heard you say that one of Citadel's competitive advantages is that your teams are working together in offices rather than commuting to work from their bedrooms via Zoom. Beyond Citadel, what do you think are the keys from a GDP standpoint for companies and their implications, getting their talent back into the office in the post COVID era?
Ken Griffin:
I think the largest challenge is the long-term skills deficit that we're accumulating in America. When you're not in the collaborative office environment, you're not learning the managerial leadership skills that I think are very important to running a business. If you create a virtual company today, you can leverage a workforce that has those skills that were accumulated pre-pandemic. It's a very different story as to whether you can build those skills de novo with college graduates who have never worked together in an office before. I find it very hard to believe that will be a successful way to develop human capital.
Josh King:
After that alluring tour through the appeal of Miami-Dade in South Florida, which is rapidly becoming known as Wall Street South, after the break, Ken Griffin, founder, CEO and co-chief investment officer of Citadel, and I, are going to turn our attention nationally and internationally from the culture needed to succeed, to where technology is taking us in the 21st century. That's all coming up right after this.
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Josh King:
Welcome back. Before the break, Ken Griffin, the founder, CEO and co-chief investment officer of Citadel and I we're talking about the journey of Citadel and Citadel Securities from Dearborn Street in Chicago to Brickell Bay Drive in Miami. Now let's turn our attention to points far from taking one's talents to South Beach.
So Ken, you once said that your best investment advice is to surround yourself with really good people, optimists, pessimists, and realists. In a piece last year, you estimated that you had interviewed 10,000 people since founding Citadel in 1990. Bloomberg reported that Citadel got 69,000 applications for student jobs in Asia, of which you hired 13. What's the process of sifting through those resumes?
Ken Griffin:
I have a team that spends a lot of time going through resumes, going through cover letters, and then going to campuses to interview our future leaders. And they've got a real challenge ahead of them. They've got an incredible number of very qualified people to pick from. They need to pick that mosaic of individuals that brings to the firm different skills, different mindsets, and different approaches that are so important for our future. What makes this place so successful is that the culture is incredibly inclusive of ideas. We want people with a very wide breadth of ideas, such that we make the best possible decisions under all market conditions.
Josh King:
Among that mosaic of individuals, one person you picked many years ago is who Peng Zhao who grew up in Beijing. I watched a talk he did with Erik Schatzker of Bloomberg at the Milken Summit last year.
Josh King:
Peng's dad worked in Hong Kong and he'd bring home from some of those trips ramen noodles, but also stories of the stock market. By the age of 11, Peng was already imagining ways to fix market problems. Did you see some of that passion in him when you picked Peng for that job?
Ken Griffin:
He's passionate about everything in life. From The Asian American Foundation, to changing market structures in the United States and abroad, Peng just brings passion to everything he does every day.
Josh King:
Talking about a passion for problem solving, problem solving, one of Jeff Sprecher's core principles for his colleagues at ICE started making analog energy markets digital in 2000. Now doing the same with mortgage technology. At Citadel Securities, what problems are Peng and his team working to solve in the equities and options markets?
Ken Griffin:
In both markets, it is creating the ability to manage the risk that goes with ever-increasing amounts of institutional and retail order flow. One of the great parts of the US capital markets is its vibrancy. And you see that in daily turnover continuing to be strong, and you see it in the continued breadth of market participants in the US equity market. We need to make sure that we're well positioned to continuously provide competitive prices to manage risk, and to allow our capital markets to function at their highest possible ability.
Josh King:
On what you said just a little bit ago about looking at the floor of the NYSC during the Spotify direct listing and how that felt, I've heard your criticism of the current SEC Chair Gary Gensler. And we all share, up at 11 Wall Street, your lament on the shrinking number of listed companies in the difficult path to going public. Last week, the Chair scaled back his new pollution disclosure rules for public companies, eliminating scope 3 emissions. Is Chair Gensler getting the message or beginning to?
Ken Griffin:
I hope for the sake of every American family he is. The U.S. capital markets play an incredibly important role in economic growth and prosperity in America. If you look at the companies that have gone public over the last several decades that were funded by venture capital, those companies today, which are listed on America's exchanges, account for about 2/3 of our country's research and development budget. That's where the future is being created. It's the VC-led businesses that have gone public that are making that investment in our collective futures to the enormity of their R&D budgets.
Everything that the SEC does to discourage companies from going public – for example, the requirement that they make a series of disclosures relating to pollution that the SEC don't even know how to actually quantify themselves – these things reduce capital formation and reduce future prospects for our country. I really wish Chairman Gensler would come to work one day and just say, "My job is to make sure that in our country you can raise venture capital and you can take a company public more easily with less red tape, less bureaucracy and less hassle than any other developed economy in the world."
How can we make that happen, and of course, at the same time, still provide for confidence within investors about the sanctity of our financial reporting and fair disclosure? He's got to get that balance right. But we want the American capital markets to serve the interest of capital formation. It creates jobs and it creates a better future for all of us.
Josh King:
Talking about going public, Ken, of course would love to eventually welcome Citadel Securities for its IPO at the NYSC. Two other firms that would benefit from that liquidity event are Sequoia and Paradigm, which bought equity stakes in your firm. The signals you seem to be sending, because of bringing those investors in, are that AI and crypto are both going to be key components in future market making. How soon can we expect that to happen?
Ken Griffin:
I'm not quite sure we had that much foresight back when we took the check from Sequoia and Paradigm. Obviously, the AI revolution that's happening at this moment in time, Sequoia is playing a big part in. And Sequoia is truly a remarkable firm of investors. They've done just an incredible job of identifying both important emerging technologies along with that leadership teams at companies that will turn those technologies into success stories. So we've been very honored to have Sequoia as an investor for the last several years and they play a really important role in the board of directors of Citadel Securities. And obviously, Paradigm is at the forefront of the crypto revolution. Here again, we like to see thoughtful regulatory clarity allow us to more aggressively and effectively compete in the business of making markets in cryptocurrencies. And frankly, I'm sure the New York Stock Exchange would love to see the same thing happen.
Josh King:
Absolutely.
Ken Griffin:
Because there's no doubt that NYSE could play a really important role in creating fair more transparent markets for all investors in cryptocurrencies.
Josh King:
And other commodity markets as well. ICE has also electrified other commodities exchanges. Gas and power markets have been on a roller coaster since Russia invaded Ukraine. The next voice our listeners are going to hear is that of Sebastian Barrack, Citadel's head of commodities from a Citadel interview recorded last year.
Quote from Sebastian Barrack:
Commodities affects every one of us in every single part of our life. So when you look at the price of fuel, you're thinking of it from the point of view of, "How much does it actually cost to fill up my car?" But actually today we think about the price of oil not just from that perspective, but also from the perspective of, "Am I going to buy an electric vehicle next or stick with a combustion vehicle as my next vehicle that I buy?"
And then of course you come back to weather. Weather drives so much what we do in my markets so that from one week to one month or one season, the weather can have such an impact and now it's a global impact for us. So when it's extremely cold in each of the regions of the US and Europe and even across Asia, you get this pull between who will pay more for that gas at any point in time over the winter. So this is just one example of how these markets are so interesting and how they have their own idiosyncratic issues within them that make them so fascinating. And also it lends itself to how we think about how to model these examples and some of the importance of these markets to everybody's lives in every day.
Josh King:
How has his team created a competitive advantage for Citadel in this space?
Ken Griffin:
We've had a very successful effort in the commodity space for now two decades. Seb has done just a tremendous job of leading that business over his time here at Citadel. He is one of the most thoughtful risk-takers I've ever worked with in my life, and he has around him just an absolutely incredible team.
One of the things that the team is very good at is really trying to understand how to solve problems that arise in the markets. Electricity can't be efficiently stored. You need to move natural gas or oil to where it needs to be consumed. There's a constant onslaught of problems that the market needs to solve in the commodities markets. And to be clear, when it comes to energy, it has to be solved efficiently and it must be solved. You can't turn on your light switch and no light turn on. I think Seb's team has done just a terrific job of having a problem-solving mindset in everything they do in the space. And they've helped to make the US commodities markets, the global commodities markets for that matter, much more efficient, much more competitive, and much fairer for end consumers.
Josh King:
Some of the big trips that ICE does around the spring is coming here to Boca to look at futures and derivatives, heading next week to Las Vegas to our Ice Experience Expo where a show that we've inherited after buying Ellie Mae in 2020 for 9 billion, followed that up with buying Black Knight, closing deal for 13 billion in September. So ICE is now doing in this terribly analog, the stake ridden mortgage finance technology space, what we've done in energy derivatives and equities. So we're trying to complete this chain from end to end. You also are very much in the mortgage space. If ICE can get it right, what does that mean for Citadel?
Ken Griffin:
First of all, Jeff has just had a remarkable history of being a transformative leader in the US capital markets. We were an early user of ICE's product in the energy markets. We're obviously a very important user of ICE's Clearinghouse capabilities around the world. And today the New York Stock Exchange really does epitomize one of the pinnacle capital markets in the entire world.
But watching what ICE is doing in the mortgage market is incredibly fascinating. We've had a longstanding history at Citadel in participating in mortgage backed securities. In fact, when you mentioned Ellie Mae, it's like one of those moments I missed a chance to invest in Ellie Mae shortly after it started at a valuation, a fraction of what you paid for it, and it's one of those that got away. That's what makes American capitalism work, right? The founders of Ellie Mae had a vision about how to automate mortgages and the origination of mortgages. And Jeff's now running with how to create an end-to-end solution in the mortgage market, from the time of origination to the time of securitization being the ultimate dream.
Here's the big picture. Everything we can do to take time and expense, and most importantly time, out of the equation when it comes to originating mortgages will save American households real money when it comes time to buy a house or to refinance a mortgage. The consumer gets very little value out of the option value associated with changes in interest rates during the mortgage origination, underwriting and closing process. But every financial intermediary has to pay to manage that risk. I give Jeff real credit for the vision of how to automate this area. As we shrink that cycle time down, we are going to save the American consumer a tremendous amount of money over the decades to come.
Josh King:
That American consumer, that investment that they make in their house, the most important money they're ever going to put down, the most important investment they're ever going to have. We've been dealing with high interest rates for the last couple of years. We began our discussion talking about Fed Chair Powell. That interest rate comes down a couple of ticks. Suddenly people are back into the refinance game and this technology will automatically tell people that, "Hey, you can refinance now and save yourself a lot of money in a way that you can only do it analog today." So really exciting days ahead.
Ken Griffin:
It is great to see these types of transformative events that really unlock wealth for the American family.
Josh King:
You can be a great mathematician like Peng, you can be a great economist like Seb, but you've also said that in order to succeed at Citadel, you've also need to be a great communicator. You've talked about your 9th grade teacher who said, "Ken, you're pretty good at math, but you also need to learn how to write." Overall, how are we failing our kids today in the basics? Reading, writing, math, arithmetic.
Ken Griffin:
Kathy Lindgren was my 9th grade English teacher. There's a scholarship fund in her name here at Boca Raton High School. She changed my life, and I will always have a very big space in my heart for her and her family. She regretfully passed away several years ago in a tragic car accident.
We as a country are failing to educate our children. About a year and a half ago, there were 53 schools in the state of Illinois in which not a single child was performing at grade level. Not one. You'd almost think a foreign country had taken over our educational system and was trying to ensure that we would not be competitive in the future. I mean, how do you explain this incredible failure in so many of America's schools?
Now, there are some incredible success stories and success academies. New York City, for example, is one of those success stories. Eva Moskowitz has done just an incredible job of taking children from often very economically disadvantaged backgrounds and giving them an education through high school that positions them to go anywhere in the world for college or for graduate school. Her classrooms are unbelievable. The big picture is, we know how to educate children, but we have lost the political will to take the steps necessary to do so. And unless we want to live in a much poorer country in the future, we've got to address the problem of K-12 education in America.
Josh King:
On the broad topic of education, maybe not K-12, but 13 through 16, Bill Ackman can write 10,000 words about how MIT and Harvard fail in their mission. The Harvard Corporation recently added to its board, Ken Frazier, the former CEO of Merck, that's NYSE ticker symbol MRK, and Joe Bae the co-CEO of Kohlberg Kravis Roberts, ticker symbol KKR. Ken, saw in the news last week, you just donated $50 million to advanced cancer research at the Sylvester Center at the University of Miami. But are Harvard's recent moves sufficient to allow them to knock on your door once again?
Ken Griffin:
I will always answer the door for Harvard, always, because Harvard really has been, for the history of our country, the school that defines the greatest in higher education. Now, I would argue that we have lost our way at Harvard over the last several years. As a Harvard alumni, as a supporter of the institution, I think it's important to help the corporate board to help current leadership find the path back to that position of unequivocal leadership in American higher education.
So the door is always open and the dialogue always exists. But right here, right now, Harvard does need to take steps to address some very serious issues that people like Bill Ackman and others have raised about the importance of returning to the basic principles of what higher education should represent. We need to teach the Harvard students the necessary skills in debate, mathematics, science, western thought and ideology, to prepare them to be the future leaders in the United States. Whether it's in the corporate realm, whether it's the political realm, whether it's the nonprofit realm, we need to think about Harvard education as preparing men and women to be leaders in our country. And I think we've lost our way on that. We've moved towards subject matter that just isn't relevant to the problems that we face as a country. We need to get back to the basics of what are the American values that have created the great success that we've enjoyed here in our country, and how we instill those values in the students that graduate from Harvard.
Josh King:
As we begin to wrap up, can success and failure just really a matter of margin for a hedge fund manager? You've made more money than anyone in this field, you've also lost more money than anyone in this field, and the key is the difference in the size of those relative piles. At the end of a trading day, what's your process for reflecting on the wins and the losses and learning from the mistakes as you get ready for the market to open the next day?
Ken Griffin:
I think you've well summarized the reality of the world that I live in. Every day there's a lot of tuition that you pay in what we do in the markets.
What I ask of my investment team and what I ask of myself is that when we get it right, or when we get it wrong, take a step back and understand why. And both have to be carefully thought through and analyzed. You don't want to spend all your time trying to learn from your mistakes. You also want to learn from what you got right. You want to do more of what you got right, you want to do less of what you got wrong, and you want to continually learn how to be a better investor. That's what we do each and every day at Citadel.
Josh King:
President Biden gave a State of the Union addressed last Thursday. Donald Trump swept Super Tuesday two days before that. Ken, the rematch is set. I heard your comments about Trump and Biden at the MFA, noting that you think, I'm going to quote you, "Nikki Haley would run away with the general election." Now we know that is not going to happen, but what is your ideal presidential candidate from central casting?
Ken Griffin:
Both of these candidates have to make their case to the American people over the next few months. Unfortunately, I think the State of the Union speech of just a few days ago undermined the gravitas of the situation at hand. Our country has real opportunities and we have real challenges, and we need both of our political leaders that are running for office, whether it be Trump or Biden, to start to step up with real answers that the American public deserve.
Josh King:
You've studied econ and government at Harvard. And since then you've spent your 34 years intensely building Citadel. I just wonder maybe, Ken, if there's any kind of mellowing in use since you've come back to Florida. It seems like you've being here as we've been talking. Your grandmother, Genevieve, was fond of reciting an old Irish poem that included the line, "Take time to share. Life is too short to be selfish." On the idea of sharing, Ken, and serving, Governor DeSantis' second term ends on January 5th, 2027. Would that be too soon for Ken Griffin to head to Tallahassee following in the footsteps of Ronald Reagan or Arnold Schwarzenegger to Sacramento or Charlie Baker to Boston or Glenn Youngkin to Richmond?
Ken Griffin:
I haven't thought about this question. I don't think I'm going to Tallahassee in 2027, but what I'd like to say is I'd like to believe that we'll get somebody really good to be in Tallahassee. And I do think that Ron DeSantis coming back to the state, this is a chance for him to return to his roots of his first term as governor. He did a really good job managing the state through the pandemic. He did a really good job of putting forth programs to help strengthen schools here in Miami and to help provide for our level of public safety and our quality of life. I'd like to see him return to the legislative agenda that made him so popular in the state in his first term, and I am quite optimistic he'll do in fact just that.
Josh King:
As we finish up here in Boca, Ken, I watched your conversation on Mount Vernon with David Rubenstein. He seemed to grudgingly welcome you to the world of auctions for historic documents, including your $43.2 million purchase of one of the remaining first edition printings of the US Constitution. In two years, we're going to mark the 250th birthday of the United States, a history that started right outside the New York Stock Exchange. How will that document guide us to help create a more perfect union over the next 250 years?
Ken Griffin:
The US Constitution is one of the most incredible documents ever written in the history of humanity. We can quibble today about a variety of issues when it comes to politics. If you watch CNN or Fox News, you'd think the entire country was on fire, but the bottom line is, no country in the world has the economic resources and the strength of America. Our founding fathers got it right. On our 250th anniversary, we should just take a step back as a country. And in some sense, like what we do at Citadel every day, what have we gotten right? What have we gotten wrong? How do we do more of which we get right? And how do we do less of which we get wrong? We've got a very bright future ahead of us if we are able to capture just the energy and optimism and sense of what can happen that exists here in the ethos of America.
Josh King:
The sense of what can happen here in the ethos of America. Couldn't put it final words any better than that, Ken. Thanks so much for spending a little time here at FIA Boca with inside the ICE House.
Ken Griffin:
Most welcome. Thank you so much.
Josh King:
That's our conversation for this week. Our guest was Ken Griffin, the founder, CEO and co-chief investment officer of Citadel. If you like what you heard, please rate us on Apple Podcasts so other folks know where to find us. And if you've got a comment or a question and you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us at @ICEhousepodcast.
Our show is produced by Lance Glenn with production assistance, editing and engineering from Ken Abel. Pete Ash is the director of Programming and Production at ICE. And I'm Josh King, your host, signing off from the Futures Industry Association Annual Conference here at the Boca Raton in Boca Raton, Florida. Thanks for listening. Talk to you from the library of the New York Stock Exchange next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length of clarity.
