Ken Griffin, whose hedge fund churned out a record $16 billion for clients last year, is increasing his focus on credit trading as he braces for a potential US recession.
“We’re much more cautious about 2024,” the billionaire founder of Citadel said in an interview in Hong Kong, adding that the world’s largest economy is unlikely to avoid a downturn that year. “We’ll look at the credit markets as a source of opportunity. Credit should be a meaningful contributor later this year” and next for Citadel, he said.
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Griffin said his hedge fund is particularly focused on the high-yield credit market, with a mixture of long and short strategies. He expects the Federal Reserve to raise interest rates once more this year and then pause hikes for an extended period of time.
US inflation slowed in May, supporting the case for Fed officials to take a breather this week.
Bloomberg Economics’ current baseline is for a US recession to start in the third quarter, while a Bloomberg survey of analysts puts the probability of one occurring within the next 12 months at 65%.
Citadel’s flagship Wellington fund returned 6.1% this year through the end of May, according to people familiar with the matter. The firm’s equities, fixed income & macro, commodities, quant, and credit strategies all delivered positive returns last month, the people said, asking not to be named discussing private information.
The Citadel Equities fund gained 7.3% through May, with a 1.2% return last month, the people added. Its Tactical Trading fund rose 7.1% in the five months and the Global Fixed Income fund was up 3%.
China Growth
Griffin is more upbeat on China, where he expects economic growth to surpass the government’s targets even though there’s a lack of confidence among investors.
“There’s a general level of uncertainty as to the level of growth in China today,” he said. “We’re actually more constructive on growth and a bit north” of forecasts for a 5% expansion.
Investor sentiment about the world’s second-largest economy has turned increasingly bearish, with Tuesday’s short-term policy rate cut drawing little enthusiasm from equity traders.
Read the full article here by Lulu Yilun Chen, Advisor Perspectives.
