Page 136

term." For example, in the 1980s, index arbitrage represented a huge opportunity. Today, index arbitrage is a commodity product. Japanese equity warrants are another example. They were big in the early 1990s but are nearly nonexistent today; they largely disappeared in 1995 due to tax and accounting changes. Consequently, Griffin has moved people into new strategies.

The portfolio is equity dominated, but fixed income plays a growing role. One-third to one-half of the portfolio is outside the United States, and this has been the case for years. Europe and Japan play significant roles. The European office, based in London, employs about 30 people. Citadel's funds have had, from time to time, small emerging-market positions.

Citadel is active in the technology sector. Its geographic presence in San Francisco is helpful. The percentage of the portfolio invested in technology companies varies considerably, ranging from 5 to 50 percent. "We are significantly invested in the New Economy through mergers and acquisitions, convertibles and long/short equity positions. We always think about concentrated risk in telecom and the Internet. We invest in companies that we think will be survivors. There is an enormous revaluation taking place in technology and we are in the midst of it. Consumer gains do not equal profits."

Griffin allocated to another hedge fund manager once. He did so because he believed that the manager had an area of excellence and that allocating to him would diversify the portfolio and increase returns.

The firm engages in private equity investments, with allocations to the sector varying based upon opportunities available in the marketplace.

PROCESS-DRIVEN

When asked about a recent loss or one that stays in his mind, Griffin said that loss is a central part of their day-to-day experience. "We lose lots of money on hundreds of trades each day. We want to prevent losses that arise from making the same mistake twice." Griffin says that many of the things they trade are repeated—giving way to learning. "These are not one-off transactions like global macro traders with a Japanese yen–U.S. dollar trade. We are a process-driven firm from