Daniel Loeb is famous for his entertaining letters to CEOs that show his displeasure with their management style or other actions. In 2005, Daniel Loeb was upset about Ken Griffin’s poaching key employees from New York hedge funds. To be fair, Ken Griffin managed to convince fund investors to foot all of the expenses and he charged 8.75 percentage points in management fees in 2005. On top of that, Citadel collects a 20 percent incentive fee. As a result, Griffin was able to pay key talented employees more than New York hedge funds were. Daniel Loeb didn’t take this lightly and sent the following letter to Ken Griffin:
I understand that you recently hired an employee of Greenlight and have also attempted to hire Third Point employees in the past. I think Andrew made a horrible decision based upon discussions that I have had with numerous former and current Citadel employees/ indentured servants.
I find the disconnect between your self-proclaimed “good to great, Jim Collins-esque” organization and the reality of the gulag you created quite laughable. You are surrounded by sycophants, but even you must know that the people who work for despise and resent you. I assume you know this because I have read the employment agreements that you make people sign.
I understand your need to hire employees from other firms, something that Third Point has not had to do based on the fact that, unlike yourself, I actually enjoy and have talent in investing and am able to nurture others within my organization whom I hire from wide ranging disciplines such as graduate schools, private equity firms and medicine.
Let me be clear that, under no circumstances, are you to approach any Third Point employees or attempt to offer them jobs. First of all, like Brad Radoff, who you poached from me some years ago, you do not even know how to manage people who invest. He has happily returned to the Third Point fold and is doing extremely well.
Secondly, those that you have approached know the low regard in which I hold you and your over-rated firm, and they are happy to meet with you and report back to me the sorry state of affairs over there and your desperate attempts to replicate our success.
My warning extends to any attempt you may make to hire employees of my friends in the event-driven space: should you attempt to hire people from them, I will consider it a similar act of war. My friends enemies become my enemies.
Good luck extracting exorbitant management fees and generating mediocre returns with your bloated organization and ego. By the way, there is little I enjoy as much as watching from afar as your reputation and “organization” declines at the same rate as your falling returns.
The most interesting part of the letter for Insider Monkey is Dan Loeb’s jabs at Griffin calling Citadel “over-rated” and his predictions about the fate of Citadel in the last paragraph: “Good luck extracting exorbitant management fees and generating mediocre returns with your bloated organization and ego. By the way, there is little I enjoy as much as watching from afar as your reputation and “organization” declines at the same rate as your falling returns.”
We believe the best way to test Daniel Loeb’s prognostication is to compare his most recent 5 year performance against Ken Griffin’s. Griffin seemed to be beating Daniel Loeb by a huge margin by the end of 2007, but Citadel performed terribly and barely survived the 2008 crisis. Overall, during the past 5 years Ken Griffin’s Citadel returned a cumulative 36% after expenses, whereas Daniel Loeb’s Third Point returned 68%. In terms of returns Daniel Loeb is much better than Ken Griffin, yet Ken Griffin made more money than Daniel Loeb during the past 5 years.