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Good evening. I'm Reena Agarwal, Vice Provost for Faculty for Georgetown, and I'm also the Robert McDonough Professor of Finance and the Director of the Georgetown Center for Financial Markets and Policy. So today, we are delighted to welcome and start our inaugural Leaders of Global Finance Speaker Series. This is hosted by the Center for Financial Markets and Policy and also by the Stanton Distinguished Leadership Series.
Just a little bit about the Center. The Georgetown Center for Financial Markets and Policy provides thought leadership for global finance. The Center offers innovative, influential, and thoughtful commentary, conducts research that impacts practice and policy, and we host dialogues and conferences involving scholars, practitioners, and policymakers. Through the Center, we contribute to an informed public discussion regarding critical issues related to global financial markets. We invite you to learn more about the Center on our website.
So, the series, the Leaders of Global Finance. This series brings together influential leaders from the world of business to discuss trends in global financial markets. And for this audience, they'll also talk about the skill set needed to succeed in today's global business environment. We are delighted to have Mr. Ken Griffin as our inaugural speaker. Ken founded Citadel in 1990 and has since served as the firm's CEO. Today, Citadel is recognized as one of the most respected and successful investment firms in the world. Citadel invests across all asset classes and is one of the largest hedge funds. I went to their website and, and the mission statement reads something like this: The firm's mission is to have a positive impact on the global economy by deploying capital to reach its fullest potential.
So, for this audience, I want to read out a few other comments. Citadel has been listed as one of the best places to work for young college graduates, recent college graduates. And why is it a great place to work? I picked up some comments from recent graduates who have started working at Citadel. Here's what they said. So, one said, "The three words that I would use to describe the firm's culture are meritocracy, innovation, and hustle." Another said, "I've been challenged with a tremendous amount of responsibility since my first day at Citadel. While the learning curve is steep, just like it is at Georgetown, it has been a rewarding experience that has allowed me to make important contributions from the very beginning." Another one said, "Citadel has great perks, a speaker series featuring top entrepreneurs and top authors. We participate in a number of team sports, volunteering, community programs, a great tuition reimbursement program, and it goes on and on." So, those of you who will be looking to go out in the job market, this is one of the best places to work.
I want to introduce Professors Ann Tears and Doug Dillard. They're teaching the hedge fund investing class to our MBAs, and they are very successful hedge fund managers themselves. They have, it's really amazing for us to have faculty like Doug and Ann teaching our students. And then on top of that, bringing in this great group of speakers for the benefit of our students here at Georgetown. Now, I'm going to introduce Professor Diaz and Professor Dillard, and they are going to lead a conversation with Mr. Citadel. I could go on and on about Citadel and about Mr. Griffin, but I think this audience knows quite a bit about both Citadel and Mr. Griffin. So, I'll hand it over to Doug and Ann. Please join me in welcoming our speaker.
Thanks, Rena, and Ken, thanks a lot for coming. Really appreciate it. One thing people don't know about Ken is that he was the other half of a very successful pétanque team a few years ago in South France, where we dominated a lot of very serious, including the world champion pétanque player. So that's a little-known fact about about Kenny. Probably never been introduced like by that like that before. So I want to thank Ken for coming. And who is teaching this class with me as a start? And then I'll chime in. So for those of you who don't know Citadel and its investments, perhaps Ken, you could start with explaining what Citadel invests in today.
Sure. So at Citadel, we have two large areas of focus. We're on a just shy of $30 billion hedge fund that invests capital across five core strategies: equities, macro, quantitative strategies, commodities, and credit. And then in Citadel Securities, we run one of the largest market-making efforts in the world. We are the largest trader of equities in the United States and in most foreign countries, and one of the largest traders in the fixed income and foreign exchange markets globally. So those are the two key areas of focus at Citadel.
2017. And Ken, you're known to have started your career by taking knowledge of the computer sciences and applying them to the finance market to identify value, income, and warrants. But how did you get started trading in the strategy of statistical arbitrage?
So, we we entered into the statistical arbitrage business in 1994, and it was really at the pushing of Frank Meyer, who backed me out of college. Frank was a very strong advocate of trying to expand the scale and scope of the platform. And I met a gentleman, David Michelle, who ran a statistical arbitrage strategy for a competitor. Convinced to join us. And here's, here's one of the great things that happened. I had a young colleague, recently had graduated from from Berkeley, this PhD in superstring theory. And my young colleague decided that this idea, statistical arbitrage, as practiced by this market practitioner, was a bit dated. And so he used his background in analytics and mathematics from his years of experience, statistics, to create our core stat arb business back in the in the mid-1990s. And it's, it's actually, in some sense, parallels some of the stories of Renaissance. So here we have an individual who had no traditional finance experience, exposed to the concepts and ideas, but who had a much stronger toolkit of mathematics and of how to solve problems, who took it upon himself to say, "I can do this better." And that gentleman, James J, was at Citadel today, has been my partner for a long time, one of the most important people in the history of the firm, truly my partner in building Citadel. Built our stat arb business starting there in 1994, inspired by the shuttle moment. We hired with experience one of our competitors.
Speaking of math applied to investing, we're talking a lot about algorithms running money today. Are algorithms better than flesh-and-bone investors? And in ten years, will robots run all our savings? Not chance.
The core of our business, our biggest business, is what I refer to is just good old-fashioned stock picking. Single largest driver of revenues at Citadel is our team of 90 equity portfolio managers, organized by industry specialty, who understand the businesses that they invest in. Our stat arb businesses are very good at picking up small, short-term inefficiencies in the marketplace, but they will never replace the judgment and decision-making of humans that are interacting with management teams, interacting with end customers, interacting with the supply chain, who are able to create a much better mosaic of what's really taking place with respect to a given business. So the stat arb businesses are very good at addressing short-term market inefficiencies. They're incredibly powerful at that. You know, a human can't look at a screen of 3,000 stocks and go, "Huh, based on how IBM and Apple just moved, HP should be up two basis points." Humans don't do that, but computers can do that. They can do it very well in the short run. But on the flip side, computers will never, in my opinion, replace the judgment and intellect and the ability to connect dots that people do who are world-class analysts in equities.
If that's the case, what is the role of artificial intelligence or machine learning in helping to support this human judgment that portfolio managers are applying?
So, those are two words that we use today as if they are the same, and they are very different. Machine learning is pattern recognition at the core. Machine learning is about pattern recognition. And where you see patterns, you see applicability for machine learning. And in financial markets, there's certainly some patterns, and we can detect those machine learning techniques and we can seek to profit from that pattern recognition. No ifs, no ands, no buts. But when the world changes such that patterns would be different, machine learning breaks down utterly. So if we think about Brexit, machine learning, worthless from just price data in standing what's going to happen on the Brexit vote, or the vote in France over who would lead France. And we would talk about this, it's sort of like the great case studies or machine learning just breaks down entirely. You can use it sort of thinking about how to forecast voters, but you can't think about how financial markets will react to the vote outcome. So machine learning works really well when you have consistent, persistent patterns. Works great for Google in search. It works great for autonomous cars, unless it's snowing, and then all of a sudden the backdrop has changed. It's changing very quickly. The pattern is very fuzzy. Car doesn't really know where to go. It's a bit of a problem. So machine learning has its limitations. Artificial intelligence is not just machine learning. It's not just pattern recognition. And it's well beyond the scope of computing power today for computers to actually conceptualize problems and solve problems in a free-form way. It's still 10, 15, 20 years away. It's a long time out from where we are today. It's not on the horizon of forces that are impacting finance here now.
You know, in class today, we talked about different types of quantitative investing based on their time horizon. So, high frequency, milliseconds; mid-frequency, maybe days; and low-frequency, months, perhaps even years. What's the capacity in each of these strategies?
The the high-frequency nomenclature is is one of those those words that has taken on a very interesting character in the days and age of the "Flash Boys" book, a great piece of fiction written by Michael Lewis, really fascinating book. And actually, that nomenclature started at Citadel. My colleague who has the physics background thought about the frequency of our trading strategies. And this is a little high-frequency strategy, this is a medium-frequency strategy, and this is a low-frequency strategy. Because physicists use words like frequency, and that that word caught on across the industry for better or for worse. In the high-frequency space, for example, in US equities, there's really two firms left that make any money of note. The whole story that Michael Lewis writes is already ancient history. The end users have become much more sophisticated, accessing capital markets. Goldman's algorithms are better, Credit Suisse's algorithms are better. They've gotten better at how they actually tactically execute orders. There's less money in market making as the banks have gotten better order execution. And then your traditional competitive dynamics between a number of firms have ended up driving most of the rents out of the marketplace. And today, for all intents and purposes, we're down to two firms that make any money of note in high-frequency trading in US equities. This is how competition should play out, and we've gotten to a stable equilibrium in the United States right now, which is a healthy one. Perhaps one day there'll be no money made by the high-frequency shops, as the Goldman's and Credit Suisse's and Morgan Stanley get even better at strategies to execute customers. So the profit pool, there's not never was the billions of dollars that Michael Lewis alludes to. It's a number that's order of magnitude in the US equity market, maybe a billion, billion five. It's a big number, but keep in mind that the US equity market turns over, ballpark, I don't know, give me a second. That's so complicated. One hundred and twenty billion dollars a day. So as a percent of total dollars traded, you're relevant for the market-making community as a whole.
Ken, going back to the technology you taught, it's probably surprised a lot of folks to hear you say that kind of good old-fashioned stock picking is your bread and butter, given, you know, how well-known you are for technological advances and and being ahead of the curve on in use of technology. Do you feel like the that the technology advances are as helpful or more helpful in good old-fashioned stock picking as it is in kind of the more what we think of as technological areas like quant?
I think that the application of technology to support the decision-making processes of our portfolio managers is really helpful. Let me just put in plain English what their job looks like. They pick stocks. If we look at earnings dates, it's a notable date in terms of measuring their skill, their win-loss ratio, what percent of the time they're right versus wrong. My colleagues that walk on water are 53-47. If they were brain surgeons, they'd have very few patients. All right? They go to work in a job where you are literally wrong almost exactly half the time. That's the day they live in. You live this world. It's very humbling. I'd not to live it. More lesser stuff is pretty cool. It's, it's incredibly humbling. So a key part of the analytic suite that we give our portfolio managers is around giving them transparency in their portfolio, what's taking place, what's driving changes in the portfolio valuation, spot like right here, right now. So is momentum causing their portfolio to have losses, or is there a shift towards companies with with lower price-to-earnings ratios, or is the market discounting stocks that have high P/E ratios or other signs of accounting issues? What's what dynamics are playing through the market right here, right now, in real-time? And we do this to bolster the confidence of our portfolio managers, who really have a tough job because you're wrong half the time. And how do you keep people engaged in a problem where they are so often, I don't want to say humiliated, but you're kind of humiliated. You get a report card every day that's an A+. Now, it happens to be that 53-47 still is very profitable in finance, but it still, it's a tough report card. How many people in this class have taken home a test in the last eight years where they got 53% right? Right? We hire the best and brightest. They go from having 90s as their average test score to 53. And every tool we can to make them better, we put in front of them. We also do a lot to help them understand the quant research done by their analysts. We score their analysts for product, we score the decision-making of the analysts. We do a lot of work with big data to help forecast trends in consumer behavior, Lululemon sales outperforming expectations or not, Starbucks, Target sales. How does that? So technology is intertwined in our decision-making heuristics and in helping our portfolio managers both understand the world and stay confident in a world that's always awash in uncertainty.
You've talked a lot about hiring and how important it is and having a meritocracy. You've gone from 3 to 2,300 employees around the world. How do you maintain that meritocracy and the culture that you guys have built?
Well, with that many employees in that many places, it's, it's a huge challenge. It's a huge trial challenge. And I actually, I copy one of the business practices from Google. So the co-CEOs of Google sign off on every single hire at Google. I literally get on every single new hire a one-page summary, key accomplishments in life, career history, and depending upon where they are in the hierarchy of employment, their executive assessment report, which is we have somebody spend four hours with a candidate and talk about their career history. So those are three of the inputs that come across my desk after they've gone through the entire interview process, the vetting process. We're going to hire this person. I still retain an ultimate veto right. And I use it. If I don't think the person has the qualities that we're looking forward to be the foundation of our future, I just say no. Drives my colleagues nuts, but nothing is more important than maintaining that standard of excellence in who we choose to hire. And, you know, people talk about much time it's been interviewing. I've interviewed over 10,000 people in my career. It's just what's required to succeed.
So, based on that, what advice would you give for folks here that are interested in going into finance?
Make sure you're interested in going into finance for the right reason. If you think it's a way to get rich, find out of the career. I've seen plenty of people in my career for whom the external benefits of finance, "I'm going to make a lot of money, it's going to be great," it's the calling card. Virtually no those people ever make any money because you've got to compete with somebody who loves finance. Why are my equity portfolio managers so good? They they outwork the competition. They're reading that 10-K on a Saturday. They're at the conference on Monday morning. I mean, you've all seen "Two for the Money" or "Wall Street," maybe you have it, I don't know. You watched it, you're not, you know, it's a glamorous life of working at Wall Street. There's nothing glamorous about the local residents in in no-name Arkansas where you're visiting a company to meet with management. There's nothing glamorous about that at all. It is a lot of hard work, and you're competing with, by and large, the best and brightest in America who go into finance. So you just look at all of our top schools, the percent of students that go to the Goldman's, the Morgan's, the Citadel's, it's a, it's a pretty significant percentage. So if you're looking for external rewards, go somewhere else. I mean, one of my colleagues went off to start a janitorial services company. He's probably like those that unnamed billionaire we've never heard of because he's competing against people who have less talent on average than you have in finance. If you love this problem set, if you're really interested in business models, what makes businesses work, you enjoy the investigative aspects of trying to understand supply chain, customer preferences, like, how do I think about Netflix subscriber churn? I'll call 25,000 Netflix subscribers and ask every month, "Do you plan to renew your Netflix account?" If you're willing to do things like this, finance can be a lot of fun. But if that's not interesting to you, go do something else. There's a lot of different areas in our economy that are that are incredibly fascinating to be a part of.
The last question, if I open it up to the floor, what's your your long-term, short-term goals for for Citadel?
Short-term is like December 31st, it's about 12 weeks away, and we'd like to put another good year. I mean, I do live in a world of, I get a report card every single day, and my investors make capital decisions every single year, and we have 200 investors around the world. Let me tell you, I get fired every single year by somebody. All right? There's no, there's this sort of myth that you can be self-employed. It's a myth. You get fired all the time by your clients. So I need to deliver to my clients. And like corporate America, that has to whine about short-term performance, I've got to deliver short-term performance. So first, it's on the 12/31, let's have a good year. Let's take focus. We've had a good year so far. Keep complacency down, keep focus up, keep the eye on the prize of continuing to invest our capital thoughtfully and carefully for the next 12 to 14 weeks until we get to year-end. Longer run, the big focus is, I'm gonna win by having the best team in the world of talent. That's how we're gonna win. We're gonna assemble the team of the greatest talent in the world. We're gonna manage that team thoughtfully. That's the one-two combination that's going to sustain our business for the next 50 years. Now, if you look at Goldman Sachs, which has had such a great run of success, they've always been on campus, a firm that wins in the head-to-head competitions against the other banks. And when I beat them for a candidate, and I beat them quite a bit these days, I'm trying to surpass where they've been historically in the US financial system, the destination for the best and brightest to go to work. And if we manage this human capital well, we work together as a team, we stay focused on relevant problems, we keep the political dynamics down, bureaucracy out of the business, manage the complacency that goes with success, we will have a very bright future ahead of us. But as Lloyd Blankfein has put to me, "I won't know if I've been successful till the day I retire," because whether or not my firm is there five years post my retirement is actually the ultimate mark of the success of my career. Not planning to go anytime soon, but those words haunt me. So I have to think long and hard about, are we creating the dynamic where that next generation of leadership talent is being groomed and developed? That one day I pass the baton on to one of my younger colleagues. I've seen this do this time and time again. We've been in business for 27 years, but one day I need to only pass the baton of CEO, and I need to make sure that we have a dynamic that creates the opportunities and experiences for people to learn how to run a global financial services firm.
Great. So, open it up to the floor for a couple of questions before we run. We have a microphone here too. Maybe just wait a second.
Thanks. Good afternoon, sir. Thanks for taking time. My name is Robin from the McCourt School of Public Policy. When I look at the extraordinary low volatility we've seen in the stock market in 2017, one of the questions I have is, how is the volatility so low when you match that up with the political environment of uncertainty? And I was wondering what your thoughts were specifically in the market-making section of your company, because it must be hard to make those profitable edges when volatility is so low.
So, there's just two very different questions in that question. We are in a very low period of volatility. This is actually very common towards the end of the business cycle. So this is, this is not inherently unusual. If you're, when you're in that sort of seventh, eighth inning of the business cycle, the rate of change in the underlying economy is also lower. Right? We're seeing the challenge of low productivity, for example, right now. We're seeing businesses not change as fast as they do on the backdrop of a financial crisis, right? So the, you know, business cycle, financial crisis happens, companies shed workforce, they re-rationalize their capital investment, winners and losers emerge pretty quickly from a strategic and financial perspective. And then as you move through the business cycle, that rate of dynamism falls in the economy, and you see it in falling volatility. Now, the political gridlock in Washington, look, Jefferson, Hamilton, they're like toasting each other right now. They designed, they designed a political system that was designed inherently to be slow-moving. We do not have the parliamentarian system of the UK, where when you sweep into office, you really have the reins of political power to make fast change. The American Founding Fathers were very skeptical of government. They wanted a government that was very unwieldy, and well, they got it. All right? They got it. And so, you know, I was in Washington today meeting with leadership on tax reform issues. We're about to make a whole series of changes to the underlying economy on the back of that. And you watch the the wheels of Washington grind so slowly. And that's what our Founding Fathers wanted. Our business community, actually, in some sense, is so successful because of that. We have relatively high stability on the playing field with which we can make longer-term investments in the business community, right? If if we actually thought things could radically change very quickly, be much harder to create capital formation in our country, if the political rules of engagement were very flexible. And take a step back, if we look at the Western world, what percentage of innovation has happened in America as compared to Europe over the last 30 years? Now, the European educational system, baseline, it's frankly better than America. Our colleges are still the best in the world, our universities are still the best. But baseline education is stronger in Europe. Why is it that we beat the Europeans? It's our culture. Our culture of being a country of risk-takers and entrepreneurs. It's okay to fail in America. It's not okay to fail in France. And our political system, when it's all said and done, is broken as it is, is still one of the best in the world. Strong rule of law, courts, and a stability of on the playing field that allows for longer-term investment decisions. Profitability of a market maker these days. But if you read The Wall Street Journal, you see all the market makers closing down. And again, it's the competitive dynamics I talked about earlier. The end users are getting more sophisticated, matching up orders of out market makers in essence. And with lower volatility, there's less need for risk intermediation, and there's therefore fewer market makers. So we're seeing consolidation in the industry right here, right now. That's part of a business cycle. And that dynamism of those firms shutting down, that talent gets released into the broader ecosystem. We'll hire some of those individuals. They'll bring new ideas and insights into how we run our business. They'll make Citadel more effective. And that mobility of our labor force is really important to the success of American business.
Hey, Ken. My name is Sean Kumar. I'm a finance student here at the Business School. Just have two quick questions. Number one, where do you see the future of active management with everything that's going on on the passive side, and you know, robo-advisors, etc.? And two, with, you know, Octagon versus Surveyor, you know, what are the different strategies there, and you know, where do you see that going? Thank you.
So, these are two hugely different questions. So I'll answer one a little bit lengthily and one very short. All right? So let's just, mental model for a moment. All the money in the US equity markets, passive. What happened to price discovery? We're having price formation. Like, the mental model of 100% passive, it just hardly breaks down. All right? So passive works so long as you have a sufficiently robust active community that drives towards price equilibrium. The Vanguards of the world are enjoying the free lunch of the work of my equities team. That's what they do. And that's, that's actually totally fine. We don't need to have all the money in our economy either active or passive, but you need some mix. You need some mix. And the market has solved for that. And if there were to be more money passively managed, market efficiencies would on the margin increase, induce more profitability for the active managers, would be more of them, we'd have a new equilibrium over time. So I'm not, I'm not terribly worried about that dynamic. It gets talked about a lot, but markets find equilibrium over time. We run multiple equities teams. You mentioned Surveyor, Octagon Global Equities at Citadel. It's about, it's about the personalities of our leaders. A given head of a business can manage 20 to 30 portfolio managers. That's their effective span of control. And there's a lot of very talented equity PMs in the world, and they self-select into our various teams based upon their rapport with other teams and the management. There's no, you know, effective difference in these businesses day to day, other than who do you work for and who do you work with. Those are the big differences.
Yep. Here's one more after this, and then...
Citadel's main competition for talent has to do with Apple and Google, and not necessarily Ivies, right? So how does Citadel compete for talent with those tech companies? And my second question is, how do they keep motivated, like your executives motivated afterwards?
So, there's, there's two great questions there. There's a presupposition that our primary competitor for talent is Apple and Google, and it's not. It's not. They are a big competitor for talent, but ultimately, if somebody comes to me and says they're really interested in search, then go to Google. I mean, one of the best women who ever worked for us, she was two years into her career for us. Her boss comes to my office, my partners, and says, "She wants to go to medical school." And you've got to convince her to stay. And I said, "Oh, no, no, no, no. When she walks in my office, I will offer to write a letter of recommendation. The world desperately could use another great doctor. I don't need another great options market maker, but I need another great doctor. We all do." All right? So strong competition in financial services leaves fewer people in financial services. We accomplish the same work with fewer people. We free up human capital to the rest of the economy. And I don't want to try to steal the person who's extraordinarily excited about like the iPhone 15. I don't, they don't need to be on my team. And by the way, like I'm not being facetious. Like my iPhone is over there charging right now, and we've all looked at the new iPhone 10 announced today, and we're excited about it. We need people to do that. So I'm looking for somebody who has the technical toolkit to solve the kinds of problems that we need to solve, who has an interest in the kinds of problems that we're trying to solve. That's who I'm looking for. And I do compete for those individuals with a large variety of industries in America. But if you don't love what we do, don't come to Citadel. Go, go solve, go somewhere where what you do makes a big difference. I spoke earlier in the class, this is important to think about. We're a very different economy than our parents grew up in or our grandparents. What's the fifth biggest maker of personal computers in the world? They're actually like number two or three. No one knows. No one even cares. No one cares. Fifth biggest source of online music? Who cares? We live in a world today of more more winner-take-all. And those winner-take-all firms are so successful because of the breadth they have today, the number of people they can touch, the number of people they can solve problems for at one point in time. I solve a problem in the capital markets in my market-making business. I can bang that out across 40 different countries in three months or less. All right? We have a world today where we, it's winner takes all. I need a small number of people who are highly gifted, who are highly passionate, who are going to carry us forward in this winner-take-all world. And we can't misstep for a moment. So if you're not that passionate about what we do, I don't want you on the team. It's that simple. The second part of the question was, stay. I'm gonna keep them. You know, you're 40 years old, you've got a net worth of nine figures. Do what you want to do with your life. And shockingly, a ton of them choose to stay with me. Some go out to be the, you know, Treasurer of the State of Delaware. God bless. I mean, I'm totally serious. One of my colleagues has two children with a drop of milk kills his kid. He came to me, he says, "Look, I'm going to retire. I'm going to commit my life to trying to find a cure for my children." What do you say to that? You say, "God help you." So I, I hope that my executives are wildly successful. And I hope as long as their passion about finance, they're on my team. And I hope when they find another calling in life, they enjoy all the years that they put into helping to build one of the great companies in my space, and they enjoy the fruits of that labor.
One more question right here.
Hi, Greg House, like Business School. How do you think about how liquidity has changed kind of over since the financial crisis in terms of products that have been introduced that have mismatches between underlying investments and what's being offered to investors? Blackstone recently GSO rolled some of the open-end stuff into closed-end funds. And the limited number of market makers outside of your firm that are still existing in the market to the same extent that that used to be. And then if you could maybe, you've obviously seen a lot of firms in your career, maybe one private equity and one hedge fund firm that you admire outside of your own firm. Thanks.
Three or four questions there. I mean, I'll triage this into one answer. No, I look, there, there's absolutely a growing degree of mismatch between the liquidity nominally offered by a variety of products and the underlying liquidity of those markets. And that's a cause for concern. If I were the SEC, thinking about policy issues, I would be thinking about that issue long and hard because you can't unwind a huge chunk bond portfolio overnight. It takes weeks, it takes maybe even months. And the amount of money raised in open-end products where the underlying instruments are less liquid, I think is cause for concern. I think it's completely legitimate. So you might want to think about how those funds deal with the peripheral run in the bank. So they start to distribute in kind? Do they distribute in kind by date of seeking liquidity? How do they start to deal with that liquidity mismatch? And ultimately, our investors, how are investors going to deal with the losses that they'll incur when you get sudden market gyrations as these funds try to exit the doors simultaneously? So I think there's some legitimate concerns there in a public policy sense of the word. All right, that's, that's number one. Number two was less market makers. You know, what, how many, how many market makers do you need? I mean, like, how many do you need? I treat 20% of your stocks change bottom every day. Five. There you go. You need five firms. All right? And I'm more or less serious. Like, you don't need 15, 5, 25 firms. Five well-run firms that had the technological capability. We need more than one because we do have technology problems. We sometimes go down on bad days. But we need more than one. But we don't need 50. We don't need 40. We need five. And we're seeing that globally in a number of products. The drive towards five. How many major players are there in interest rate swaps today? There were 23 years ago. We entered the market 18 months ago. We're down to seven of consequence today. We took 13 second-tier players out. That's the march of progress, right? And by the way, those five are actually doing really well. Like, even though the market's more competitive than ever, and bid-ask spreads are higher than ever, and users are more engaged than ever about the product, just the product's cheaper to trade. It's a more competitive market dynamic. Markets healthier. So good competition increases value for consumers, drives up use of the products, and leaves a good environment behind. So we don't need 20 firms. We need five global players in capital markets risk provisioning and risk management. Then, what he has a private equity fund. Now that, now that Standard Pacific is gone, that fund that you admire. That's a great question. I mean, of course, I, I have great admiration for. You know, you always have the problem of being too close. All right? Like there are, let me just, I'll close with this. I have great admiration for Paul Tudor Jones. He's a close personal friend of mine. He was one of my inspirations like when I was young in college. Paul was on top of the world, on top of his game. That was one of the firms I really admired. Ed Thorp, I'd be in the same category. Ran Princeton Four Partners. In private equity, you know, you've got to take your hat off to Steve Schwarzman, the team at Blackstone. You just do. Jonathan Gray, who runs the real estate business, he's my contemporary, outstanding, outstanding thinker, leader. He'll run that firm almost certainly one day. So I give a lot of credit to Steve, not only for having built a great firm, but for having individuals within that firm that clearly have the talent to run it. In the hedge fund space, we don't have as many of those succession stories. That's been one of the challenges of the industry, is how do you create the succession story that Steve's created in Blackstone? You know, KKR just announced a new leadership team. I wish Henry all the success in the world. When I was in college, you know, there's no doubt that that KKR and Henry Kravis, private equity, was one of my inspirations. I actually, if you asked me when I was 19 years old, what I'd do, I'd do private equity. Got that totally wrong. It's okay. Worked out okay for me. But Henry was my ultimate hero. That's what I wanted to be when I grew up. Great admiration for both him and the team at Blackstone. Ken, thank you very much. Really, really appreciate it.
I don't know, one more question. All right, it's okay.
My question for you is, you stole a salad dish from college at 19, and then you started your firm at 22. What advice would you give to people or to start your own fund? What advice would I give to people who start their own fund? Is that the question?
Well, number one is, there's a great myth about being an owner. You do not own your business. Your business owns you. So just be prepared for that reality. If you don't want to sign up for that, don't start a business. But your business will own you. It's amazing how many issues you could deal with 24/7, 365. Number two is, the best advice I've ever had in my life: hire the best people you can possibly hire. I mean, if I, if I just look at what has been the story of Citadel over 27, 28 years, it's actually the story of how remarkable my colleagues have been in their ability to change the landscape of US financial markets. My partner who runs our securities business is roughly 34 years old. He grew up in mainland China. He grew up with Beijing. He grew up in a country where learning his neighbors traded futures contracts was a capital offense. Stable was discovered for doing this, arrested and summarily executed. He grew up in a world that you and I can't imagine. And today, he runs the biggest market-making business in the US equities market. He's 34 years old. So what I would say, that story, my career has been the story of the incredible accomplishments of my colleagues. The young man who went to Berkeley, who was exposed to superstring theory, he saw at our business, said, "I can do this better," and did. Those stories have made Citadel what it is, time and time again. So be prepared for the reality that your business will own you. And and be absolutely willing to hire people around you who are better, stronger, smarter than you are. I will leave with this story. I was in my conference room about two weeks ago with some of my best guys. Well, my guys who are most gifted at mathematics. Pauses for a moment to answer a question. And he looks at me, goes, "It's sometimes painful to try to find the simple English to explain a concept to you." Well, okay, that put me in my place. But that individual drives a hugely successful business for me. And it's totally okay with me if he can run circles around me with math. I have no problem with that. I need individuals like that. And by the way, when he has a hard math problem, and he's one of the best mathematicians in the world, he actually knows who to call in Switzerland to solve it. It's like, "This is really hard. I'm taking myself..." "That must not be solvable because I know who will solve this over the weekend." And the guy in Switzerland will solve it over the weekend. Like this guy whose math skills are mind-boggling is, is months. Monday, we have an answer. Okay, that's a team that wins. But you need to have around you that mosaic of people with complementary skills, with talents different than you. And you have to be perfectly comfortable in not being the smartest person in the room on a litany of issues day in and day out. That's how you create a great business.
Thank you so much for the time. You.