In the weeks after the September 15 bankruptcy of New York investment bank Lehman Brothers Holdings, Chicago hedge fund firm Citadel Investment Group sustained stunning losses. So dire was the situation at Citadel — whose funds were down nearly 50 percent on the year through November — that CEO Kenneth Griffin held a special conference call for bondholders (unique among hedge fund firms, Citadel had issued public debt). As nervous creditors listened in, Gerald Beeson, COO of the $13 billion firm, said that much of the damage incurred was from “the unprecedented dislocation of the price of cash assets relative to the price of derivative securities.”
It was an arcane...
