Category Archives: Hedge Fund CEO

Changes in Investment Banking

Investment banking is starting to shift its focus. Financial institutions have grown larger, but many have seen their profits dwindle. Almost all banks in the United States are commercial banks. They issue out loans through the federal reserve. The federal reserve charges interest so that they can use the capital gained to issue more loans. It all sounds very simple on paper, but economics is a very complex subject. A lot of things can alter the value of currency. Certain obvious factors also change the rate that it is gained and lost. Modern financial institutions like hedge funds have had to be a lot more careful with their money. Most banks are almost entirely forced to ride stock options that are considered safe bets. This is because the United States government and its lawmakers now have a much stronger aversion to risk. Stock index returns are as high as they’ve ever been. Many people are currently aware that a lot of that money goes to the richest percentage of Americans, but much of it does not go to investment bankers. Banks are now under much closer scrutiny than they were a decade ago. The capital requirements are almost completely different. The Dodd-Frank Wall Street Reform and Consumer Protection Act did quite a bit to make sure that banks could no longer throw millions around as though they were playing Monopoly. Many of the most successful banking firms have maintained their hold over their capital gains over the years because they’ve made the right decisions. Bankers have to be careful to assess risks. Mounting interest rates are often bad for both banks and people receiving loans. The fundamental principles underlying modern economics are the same as they were 100 years ago. Ken Griffin is the founder and CEO of Citadel. Citadel managed to survive the 2008 Wall Street collapse for a lot of different reasons.  Ken Griffin’s business started in Chicago, so he’s managed to avoid a lot of the psychology that plagues investment bankers in New York. Citadel may push a lot of money around, but they do it with the same core principles that they had when the company was founded.