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Citadel to launch new stock unit, taps Diamondback Capital co-founder as head

Published 04/20/2016, 04:56 PM
© Reuters.  Citadel to launch new stock unit, taps Diamondback Capital co-founder as head
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By Svea Herbst-Bayliss

BOSTON (Reuters) - Hedge fund Citadel is launching a new stock-picking unit later this year and has hired industry veteran Richard Schimel to run it, illustrating the $24 billion firm's commitment to a sector where it has expanded dramatically in the last year.

The company said Schimel will join as a senior managing director and will sit on the firm's investment committee while overseeing the still unnamed new unit.

"With Richard's hire we continue to execute our talent growth strategies, establishing teams in talent-rich locations while also providing ample opportunities to promote and develop existing team members through a number of platforms," Citadel wrote to investors in a letter seen by Reuters.

Schimel said he expects to hire as many as 70 people in the first year alone. Six to eight teams with seven to nine members each will cover all key stock sectors.

Schimel previously ran Diamondback Capital Management, a prominent hedge fund that counted Blackstone (NYSE:BX) Group and many pension funds as clients.

The new unit will be based in Greenwich, Connecticut, marking the first time Chicago-headquartered Citadel will have a major presence in a state that is home to Steven A. Cohen's Point72 Asset Management and many other hedge funds.

A year ago Citadel launched Ravelin Capital, a new stock picking unit in San Francisco. It also has two other units, Global Equities and Surveyor Capital.

The expansion further underscores the resurgence of Kenneth Griffin's Citadel which has steadily rebuilt since losing roughly 50 percent during the 2007-09 financial crisis on the back of riskier bets. The firm's flagship Kensington and Wellington funds gained 14 percent last year, a year in which the average hedge fund lost money.

It also illustrates how Citadel is sticking with a multi-manager platform at a time when funds with this type of format have experienced some troubles.

Citadel replaced Jon Venetos as head of Surveyor earlier this year and laid off more than two dozen employees in the wake of losses.

"Investors will continue to want low net, market neutral strategies and we think this is going to be a substantial opportunity for Citadel," Schimel said. He also noted that it is a good time to be hiring since many smaller firms are struggling right now.

For Schimel the move to Citadel marks a full comeback.

He was forced to shut down Diamondback when the firm he co-founded with Larry Sapanski and Chad Loweth was touched by the U.S. government's insider-trading investigation. Neither Diamondback nor its founders were ever charged with any wrongdoing.

Former Diamondback partners earlier this year received a $3 million refund from the Securities and Exchange Commission paid years ago to settle civil charges related to the insider trading case.

At its peak, Diamondback employed 260, including 50 portfolio managers, and once had as much as $6 billion in assets.

After Diamondback, Schimel set up hedge fund Sterling Ridge but like many smaller firms, it struggled to gain traction and most recently managed only about $250 million. Investors have been told that the firm is being shut down and the portfolio is being liquidated.

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