Sequoia, Paradigm Buy $1.2B Stake In Trading Firm Citadel Securities

Ken Griffin
Ken Griffin

There’s a prominent event on Wall Street today. One of America’s premier trading firms led by famous billionaire investor Ken Griffin, Citadel Securities, has taken an outside investment for the first time in its two-decade history. The firm has taken a $1.15bn minority investment, giving it a $22bn valuation. Sequoia Capital, the famous Silicon Valley venture capital firm, led the round, and Paradigm, a leading crypto-focused VC firm, participated.

This is a landmark albeit surprising investment that ties a renowned Wall Street firm to two big investors in the tech industry. If one were to forecast Citadel taking a minority investment at any point, the investors would have been conventional Wall Street firms rather than VCs from the tech industry, but here we are.

  • Citadel Securities is an affiliate of Citadel LLC, a hedge fund with over $40bn of assets under management that’s known to be one of the top-performing funds; it reportedly gained nearly 20% last year. At Citadel’s helm is CEO Ken Griffin, who’s become famous as a villain of a sort to retail traders due to his role in the AMC-GameStop-Robinhood saga.

 

  • Otherwise, Griffin is also famous for making the type of real estate purchases that’ll turn heads. He holds the record for the most expensive home purchased in America; a $238mn New York City penthouse.

 

  • Griffin founded Citadel LLC, the predecessor to Citadel Securities, back in 1990. He was already a super-successful hedge fund manager when he launched Citadel Securities, a market-maker, in 2001. Citadel Securities grew so successful that it reportedly handles 40% of all retail trades in the US.

The investment is a stamp on Citadel’s tech abilities, even though it’s primarily a finance company. Software and algorithms help Citadel handle an enormous trading volume every working day. The investment also provides an exit to Citadel’s shareholders, the largest of whom is Ken Griffin. At a $22bn valuation, Griffin’s estimated 85% stake in Citadel Securities will be valued at nearly $20bn, not to count his shareholdings in other assets like Citadel the hedge fund or real estate and art.

However, Sequoia’s investment could draw suspicions of Citadel’s close relationship with Robinhood (NASDAQ: HOOD), the famous retail brokerage. Robinhood drew ire from a significant percentage of users last year when it stopped customers from trading certain stocks (GameStop, AMC) at the height of their frenzy. Despite objections from Robinhood’s CEO, some traders blamed Citadel for the restrictions, citing its close relationship with the brokerage.

Citadel Securities indeed has a very close business relationship with Robinhood; it accounted for 43% of Robinhood’s revenue in Q1 2021 through “payments for order flow.” The trading firm now shares a common investor with Robinhood, Sequoia Capital, further tying the two firms. The other investor, Paradigm, is a firm that primarily invests in crypto/blockchain companies. One may say this implies Citadel becoming friendly to crypto, but don’t be too sure; Griffin is a crypto skeptic.

  • Sequoia Partner Alfred Lin has taken a board seat at Citadel Securities as part of the VC firm’s investment. Lin also has board seats at Airbnb, DoorDash, and medical logistics company Zipline.

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