Why Citadel’s longest-running equities unit is focused on shorting stocks

Ken Griffin’s Citadel manages $64 billion.

While some big bets against specific stocks have blown up in hedge funds’ faces in recent years, there’s still a focus on shorting at Citadel’s longest-running equities unit.

Citadel Global Equities, a market-neutral strategy that started in 2001 for Ken Griffin’s $64 billion firm, has generally made more in its short book compared to its longs in recent years, according to comments from the unit’s head, Justin Lubell. Lubell spoke at last week’s Robin Hood Investors Conference in New York, and B-17 reviewed a summary of his comments from someone in attendance.

Lubell appeared on a panel with Atreides Management founder Gavin Baker and Lakewood Capital founder Anthony Bozza. The moderator was billionaire Maverick Capital founder Lee Ainslie.

Lubell, who has run Global Equities since 2020 after more than a decade at Steve Cohen’s Point72, said there’s much less competition on the short side. Plenty of managers focus on good long ideas, he said, but not nearly as many put the same time and resources into the short side of the book.

Focusing on the short book and seeking out companies to bet against helps investors on his team weather volatility and lets their idea play out over a longer duration, Lubell said.

Some hedge funds have abandoned single-stock shorts, instead hedging their portfolios with bets against an index of the market or a basket of stocks. There was a reluctance to target specific stocks from some areas of the industry after large bets against video-game retailer GameStop led to the implosion of Gabe Plotkin’s Melvin Capital.

Even investors known for bold short bets have moved away from the practice. For instance, Pershing Square’s Bill Ackman “permanently retired” from activist short selling in 2022. At the end of September, he had 13 long positions and no shorts in his portfolio, according to the publicly traded trust that mimics his hedge fund’s holdings.

For these reasons, Bozza, who founded Lakewood in 2007, said that those who know how to short stocks are becoming a “dying breed,” even though it’s easier to find a good short idea than a good long idea.

Bozza said it’s rare to find an undervalued company in the public markets, but an overvalued company does not receive the same scrutiny.