You'll never manage a portfolio for

every possible tail event, but then you

should stay very focused on like what is

the worst case scenario? Can I tolerate

that loss?

And and monitor and maintain your

exposures such that that loss is a

tolerable loss. It may be an extreme

loss, but it's still tolerable. Welcome

to another episode of Goldman Sachs

Exchanges Great Investors. I'm Raj

Mahajan.

I recently got the chance to catch up

with Ken Griffin,

the founder and CEO of Citadel, at

Goldman Sachs's Apex and Philanthropy.

Ken and I discussed the implications of

AI, his approach to hedging portfolios,

and the competitive landscape for the

hedge fund industry.

We hope you enjoy this conversation.

Welcome back to Goldman Sachs, Ken. It

is great to be here today.

This is our third public conversation in

the past 7 years. I know you well enough

to know you think way beyond the

numbers,

and you're a student of leadership. So,

the first question I want to ask you is,

beyond the numbers for the past 7 years,

what are you most proud of as a leader

in running Citadel?

So, I I two things jump out with that

with that question. The first is,

we were extremely early to bring

everybody back to work.

And in some sense,

it was it was almost countercultural to

demand your team to come back to an

office 5 days a week. And yet, I think

that was an incredibly important part

part not only of the success that you

spoke of, but more importantly of

continuing to develop our human capital.

Now, I think I think it

as a country, the amount of human talent

that has been underdeveloped because of

working remotely has had a a significant

damaging impact on our economy.

And recently, the Fed published a paper

where they looked at factors that have

caused um

reduced employment amongst those under

the age of 30.

And people would say, well, you know,

how much of this is the AI story? Well,

turns out that remote working is a more

important factor

to diminished employment opportunities

for young Americans than AI.

And so I'd say one of the things that

I'm I'm really proud of has been not

only did we bring our team back to work,

we publicly extolled what we thought

were the strengths and virtues of doing

so, and I think that history will be on

our side. Humans are social creatures,

we learn through apprenticeship, mentors

are really critical to our personal

development growth, and bringing people

back into our four walls aggressively

early both drove results for our limited

partners, but more importantly, helped

to maintain the strength of our human

talent at Citadel.

That's one.

The second is that during the start of

the pandemic, actually literally

as the first cases were happening in

America,

I was called by one of our former

partners who is the CEO of a major New

York hospital system, Dan Wadsworth.

And Dan called and said, we cannot get

FDA approvals for drug trials in

intensive care with those who are on

ventilators who are facing imminent

demise from COVID. I'm like, okay, Dan,

um why are you calling me?

And he says, because

there's no one else who I think can

actually make this happen by you.

>> Actually, Warp Speed was the second part

of this chapter.

We moved in about 72 hours to get the

FDA to approve experimental drug trials

for those with COVID here in the United

States.

>> Amazing.

>> And I'm really proud of my team that has

worked hand-in-hand with government for

decades

to be able to to rally resources around

on existential moment in American

history to help bring the full power of

America's medical prowess to bear

against a dreaded disease.

Another dimension of this was the idea

behind Operation Warp Speed,

which I discussed at length with Jared

Kushner,

and that program saved ballpark half a

million American lives.

And understanding

incentives, understanding how to

minimize disincentives in supply chains.

So, with Operation Warp Speed, the key

insight was

pay Big Pharma to produce vaccines

before they have the FDA results.

Okay? You get a positive result from the

FDA, the vaccine works, your time to

market's going to be measured in days,

not first do your studies,

>> Right.

>> wait for the FDA results, then move to

manufacturing, and lose 3 to 6 months.

>> that an incentives problem?

>> That's an incentives problem.

Right? Because how do you get Big Pharma

to spend potentially billions of dollars

on producing vaccines Right.

who ultimately may not work, and

therefore will be literally flushed down

a sewer system. Right? So, this was all

about the US government taking the risk

to fund the manufacture of vaccines, the

efficacy of which was not known. We

spent a few billion dollars as a

country, we saved a few trillion dollars

in GDP, we saved roughly half a million

American lives.

>> So, that's an extraordinary story that I

think Citadel was a part of, and I'm I'm

most proud of.

>> It's amazing.

The track record also

um

was

accomplished at the same time of

multiple wars.

You had this global pandemic.

And so, let's move it to the current

moment where we are.

We have a conflict in the Middle East.

We have potential energy and

inflationary implications from that. At

the same time, the S&P is at at the

highs.

The IPO window has opened up, and

there's a robust pipeline, as we've

talked about. As a capital allocator,

how do you think about this moment in

time?

What's the market getting right? What's

it mispricing?

>> So So, big picture

big picture, not only is there a war in

the Middle East, there's still a raging

war in Europe.

And the peace that you and I grew up

with for most of our adult lives is

clearly not on the table right now.

And for anybody following the situation

in Cuba, there's obviously the potential

threat of of a

would be a reasonably small skirmish in

Cuba, but yet another war.

And at some point, do you encourage

other countries around the world to

increase their use of military power?

We're going to get to that.

Okay, we'll get to that. So, why Why are

we seeing all-time highs in the S&P

while there's a war in the Middle East?

Number one is the United States is

somewhat shielded from the energy crisis

that this war is creating.

Right? The straits, key transit point

for energy, we all know these details.

There's a couple of things that have

been, I would say, upside surprises for

the world economy.

Number one is, for a litany of reasons,

China has been able to dramatically

reduce the demand for oil.

Much more elasticity of demand out of

China

than anybody had anticipated.

>> one of the biggest commodity traders,

did you guys see that coming?

>> Not the degree of the elasticity of

demand destruction.

So, yes, of course China will find ways

to curtail their need for crude.

But the magnitude of that curtailment

has been stunning.

>> Mhm.

>> Number two is this strategically a

decision by

Iran, or is this just happenstance?

But there has been a constant, not

constant, an episodic flow of oil from

the region.

Right, you'll get these LNG freighters

that will get out with LNG. You'll see

the oil cargoes leave. We've managed to

keep oil at roughly low $100 price.

>> Yeah.

>> Versus, I would say most estimates were

to put us at this point in this war, if

the straits are closed, we'd be looking

at almost $200 a barrel.

Let's talk about

>> In the S&P, the gains are being

achieved by a narrow field of companies.

And AI is a big part is a big bet

effectively for

equity markets.

You've had quite a journey in your

thinking around AI. The quote, I think

recently was

on a Friday you were shocked and

depressed

coming home thinking about the

implications of what AI will have on

society. Maybe just share more about

that journey and kind of where's your

head today?

>> So, we're going to cover a war, we're

going to cover shocked and depressed

from AI. Is there Is there a happy

ending in this conversation today?

>> I'm saving China for later.

>> Okay, great. So,

So, Citadel obviously,

not obviously, we've been a huge user of

machine learning since TensorFlow came

to market about a decade ago.

And machine learning has been

revolutionary for

for the US economy.

In in just a plethora of way from

reading radiological reports to

self-driving cars,

to

use ChatGPT to rewrite the email that

you drafted for the last 2 minutes, and

it does a much better job than we seem

to be able to do.

The big picture is the United States has

been undergoing a digital revolution yet

again over the last decade, which has

accelerated

accelerated on the back of the AI

revolution.

And I'll share just a a quick story with

you. I was I was with a number of

leaders of global multinationals about 2

years ago, and we were having dinner,

and everybody was just effusive

as to how AI was transforming their

business.

And I couldn't help myself. I'm like,

let's go around this table and share

stories as to how AI is transforming

your business.

And I got four, five incredible stories

of how companies were achieving

meaningful productivity gains.

Not one involved AI.

Really? Not one.

They involved machine learning, they

involved optimization, they involved

digitization, they involved technology.

But within the C-suite, I think the

nuance between AI and technology at

large gets a little bit lost often.

But your chief technology officers are

certainly using bigger budgets, greater

C-suite enthusiasm to really push

through meaningful projects that have a

real impact on the bottom line.

And you And you talk about the S&P at

all-time highs, corporate earnings in

America are at all-time highs.

>> The multiples actually come down because

of that.

>> It's unbelievable the growth of earnings

over the course of just the last 12

months.

All right? So, there is a technological

revolution happening, of which AI is a

component of the story, but it's just a

piece.

I think that's that's important point

number one.

On the going home depressed on a Friday,

I'll actually give you the the

use case. We One of our team members

built an AI genic system to recreate

academic papers in finance.

So, academia publishes a plethora of

papers in finance.

We read these papers thinking about the

hypothesis, the quality of the work

done, do we think what they have

observed will have persistence out of

sample.

Do stock buybacks cause stocks to

outperform? Simple example.

And

you know, you have a

legion of young masters and PhDs doing

this work. It takes roughly six to eight

weeks to reproduce a paper.

It's

It's interesting work. We find a few

ideas a year doing this, but for us a

few ideas could be worth quite a bit of

money.

My colleague built an agentic AI system

that would read a paper,

reproduce it,

verify the results that were published

in the paper,

produce the results out of sample, and

do all this work in about on average 2

to 3 hours.

>> Oh my god.

>> Right? So, here and and here's the key

point. This is

This is not just a white-collar job.

This is a master's or PhD level job.

6 weeks of work turned into

>> OpenAI just solved a math problem that

it no one had solved for 80 years.

>> Yes.

So, what you're what you're seeing is is

you're seeing AI able to take on some

really difficult tasks

and and crack problems that I think most

of us would have viewed beyond the reach

of AI just 2 or 3 years ago. Okay, so

you think about what are the human

capital implications of this for your

business and for society as a whole.

And there's a lot of implications. Now,

of note, there's no reduction in head

count sitting on the back of this

breakthrough.

Like I have incredibly talented people.

We have We have just a huge swath of

problems that we're trying to attack and

go after.

I will take every single percentage gain

I can get because with the talented

people we have, we just have more to go

after.

>> That's really important for the room to

absorb around this jobs point. This is

going to make Citadel

that much more productive.

>> A serious thought, by the way, for the

hedge fund industry.

>> flip it around. There's a second part of

this, which is that competitive moats

are being filled in at lightning speed.

Okay?

So, you get to go home and have two

thoughts in your mind at the same time.

Wow, think about the impact of this on

on very high-level work

in the job market. And in some areas,

it's it's more difficult to retrain to

transition the employees. And for

example, if you do translation, you

translate for English to German,

That's That's a That's a real problem.

Like you're going to need real skills

retraining, and we as a country need to

think about how to use higher education

to help these people retrain quickly.

But number two, the competitive modes of

our society within our within our

corporate society are all being filled

at a breathtaking rates. Now, what does

this mean? This means that we're likely

to see a golden age of entrepreneurial

activity.

Like entrepreneurs will be able to

launch new businesses

at breathtaking speeds, and will be able

to take on incumbents in ways that you

just couldn't do 5, 10, 15, 20 years

ago.

And without getting into the details of

a business, a a friend of a friend has a

startup.

We generally have 30 or 40 people,

couldn't afford that many people. How's

he run the business with just a few?

Hygienic AI systems.

We're going to see a lot of these

stories come to the come to light over

the next couple of years as as

entrepreneurs embrace this technology to

really take on some very interesting

opportunities to create value by meeting

the needs of customers.

>> It makes a ton of sense. So stay with

stay with Citadel for a second.

I think in one of our previous sessions

you called stock picking a timeless

business. How do you see just the long

short equity business where a number of

people allocate capital to changing?

What's What's a PM who does that for

Citadel in the future going to look

like? Is it the same set of skills? Are

they going to evolve? Are they going to

adapt?

>> Look, I think it's a really similar set

of skills.

I think there'll be more focus and

emphasis on those who have really good

vision about what companies are actually

creating transformative products that

will change society.

Like I think there'll be much more The

market will will reward that far more

intensely in the future

than will a company beat this quarter's

earnings or not?

Like think the question of will a

company beat this quarter's earnings has

gotten far more difficult over the last

10 years because, for example, the rise

of alternative data.

>> Sure.

>> I've access to the credit cards of

millions of Americans. What are they

spending money on? What's that mean for

Starbucks revenues this quarter? What's

it mean for McDonald's this quarter?

This is This is a decade-old

transformation.

But the here and now is just becoming

far more transparent,

far more readily understood, and triage

by the combination of really bright

people and really good AI technology.

Where this will leave us is those who

are able to see what will un- what is

unfolding over years to come

will be in a very valued position on a

relative basis.

>> That's compelling.

At Citadel Securities, this other

business we haven't spent much time

talking about,

you have double-digit market share in a

number of different products in equities

and futures, treasuries.

You keep reading about compute being

this critical

input into the production of

market-making liquidity. You're reading

about all billion-dollar transactions.

Just tell us about how do you think

about sourcing compute within the market

maker? How important is that in the four

in the future? And if you want to take

it into distinctions between inference

costs versus training costs, how do you

sort of see that play out as running one

of the most successful, frankly,

technology companies in in the industry?

>> Look, I I mentioned earlier that machine

learning has been a critical part of the

story of Citadel for a decade, and

that's equally true at Citadel

Securities. So, we've been using

TensorFlow and and the subsequent

generations of ML models for for 10

years.

The rise of transformer models and other

models of that of that ilk over the last

several years has continued to progress

our ability to both price and manage

risk.

And that's true not just for us, but for

a number of other leading market-making

firms in the world.

Uh we compete for compute access with

with everybody.

I mean, today

I don't know if your iPhone does this,

but you know, your text messages get

summarized. I don't know if you Goldman

has your emails summarized.

We do summarize Goldman Sachs's

research, I'm sorry to say.

Couldn't help myself. It's kind of

funny.

It is amongst the best research in the

world.

Yeah, I mean, just make sure. But, you

know, there's there's just a tremendous

amount of AI tooling being used in

society each and every day, which has

consumed, and this is sort of

breathtaking,

for all intents and purposes,

all the available compute today is more

or less utilized all the time.

>> Yep. Okay.

>> So, the question is, who's willing to

pay the most for it?

It's just that simple.

And the price of compute has certainly

gone up per unit of compute

beyond where people would have

reasonably projected it 2 or 3 years

ago.

And so, your your large market-making

firms that make extensive use of of

these types of tools are spending today

hundreds of millions of dollars on

compute.

And that is that is simply the going

market price for this capability. Just

like the price of jet fuel's higher

today,

price of eggs a few months ago was a lot

higher than we like to see. Like,

there's inflation in compute cost. It's

just a reality.

And people who have lower margin

businesses won't be able to bear that

cost impact, and those who have higher

margin businesses will. It's It's the

nature of where we are today

given the just enormous demand for

compute across a litany of different use

cases.

So, all compute manufacturing leads back

to this China-Taiwan issue and TSMC.

Can you tell us how do you think about

where we are with the China relationship

and chip security and investing in the

region from from your seat?

>> That is a lot of questions packed into

one. Multiple choice, you can start

anywhere. Okay, let's start first of all

with just the the bottom-line reality.

China is one of the most innovative and

fast-growing economies in the world.

Period.

In fact, it's it's a bit as an American

I get frustrated by this. Out of roughly

the 75 most important technologies in

the world today,

leading, whether it's solar, EV

batteries,

a variety of different quantum areas,

the Chinese lead in about 67,

68 out of 74 technologies.

>> I saw a stat about academic published

papers and they're they've pulled ahead

of the field as well.

>> I'm I'm not surprised. I mean, you know,

fundamentally, 1.4 billion people, large

population,

extraordinarily strong emphasis on

education in their society.

Like, extraordinary.

And then a substantially higher number

of graduates with STEM degrees.

Like, they are creating the human talent

that you need to win in a higher

value-added, higher intellectual

property world.

>> For sure.

>> And the United States needs to wake up

to this reality. Like, we need to move

our feet and stay focused on the Chinese

as a threat in the regime, in the area

of the global economy where we have

reigned for the last 50 years. The

United States has owned the creativity

and innovation area of new product

development.

And the Chinese historically have been

relegated to producing low margin

low value added products designed in

America. That is changing. And that is a

threat to our very way of life.

So that is that is a cold economic

reality and the the most important thing

we can do as a country is not tariffs,

it's we need to educate our youth

to be able to stand their ground and out

compete, out innovate

and out problem solve their

contemporaries across the ocean.

So that's one. Number two is Taiwan's a

a particularly painful point of

potential geopolitical tension.

How do we end up here, right?

And it's it's a it's a situation where

where there there is no winner.

Like this is a really bad equilibrium.

Because if China takes Taiwan

it has you know, the rough estimate is

if US loses access to Taiwanese

semiconductor chips our GDP falls by 8%

in 6 months.

Simply put, we go into a great

depression in the blink of an eye.

Unlike any we've seen. It's staggering.

It's staggering and and you go, "Well,

how could that be?"

Boeing stops making planes in 6 months.

Most new cars stop being manufactured in

6 months.

Consumer electronics stop being made in

6 months.

Everything freezes.

TSMC chips are every high-end product

made.

They're everywhere.

And for China, obviously putting the

United States economy into such a

tailspin would also have draconian knock

on effects to their economy given how

big the United States is as an export

market for the world.

Right? So there are no winners in a

world in which there is military

escalation in Taiwan.

>> How do you navigate this prisoner's

dilemma as an investor?

>> So, as an investor, you need to think

about and I think it varies depending

upon where in the world you're situated.

Right? The Chinese the the nature of the

of the economic consequences will be a

function of where you sit.

And we see that, for example, even in

the war with the Middle East.

Right? The the Iranians

the Iranians are very loath to like they

really want to get oil to China.

That's their access. That's their ally,

right? Right? So, what you would see in

a situation where if Taiwan were a

blockade was created around Taiwan, for

example,

you would see that the nature of

sanctions and actions by countries

around the world would not be unified in

opposition to China anymore, in my

opinion.

And so, is the country that's your home

going to be part of the American sphere

of influence?

>> Yeah.

>> Where Europe is in this

is actually, I think, a bit of a

question mark.

We'd like to believe that they would be

part of Team USA, but

that's less clear today than it was 2

years ago.

And then, for example, the Middle East

is clearly going to look to play the

role of Switzerland.

Right? China's a huge consumer of their

primary export product, oil.

They're going to look to be able to play

the role of Switzerland. So, I think I

think where you sit in the world has

very important implications about how

you think about your China exposure

vis-à-vis this one important issue.

>> That's really insightful.

We also took questions from the

audience.

One conference attendee asked about the

outlook for energy production amid the

rise of AI.

>> So, the United States

from my perspective has to absolutely

embrace

how do how do we how do we become, once

again a world leader in nuclear

and small modular reactors being a big

part of that story.

But we need to re-embrace nuclear. No

carbon footprint to speak of.

And nuclear actually has one of the

lowest mortality rates of any source of

energy we've ever used.

Hydro has killed magnitudes more people

than nuclear has. So that's one.

Number two is

solar and wind

create sort of the sense of superficial

like hey, we're environmentally

friendly.

But solar cells were often made in

Western China. They burn coal to produce

the solar cells. It's about a 7-year

recovery

of you you need to capture energy for 7

years with solar cells to break even

vis-a-vis the coal used to produce them.

And with wind, we still don't know what

we're going to do with the turbine

blades.

They last about 20 years. They're carbon

fiber. They don't break down.

Like they're no longer structurally

strong enough to use in the turbine.

But on the flip side, they don't have

any like they don't readily break down.

So they're going to fill landfills

around the world. They already are to

this day. We don't have a clean energy

solution yet that's truly clean.

And then until we have

And the holy grail of course is is

nuclear fusion. Until we get to nuclear

fusion or broader use of nuclear,

the United States does have one huge

asset. We do have We do have natural

gas.

And contrary to what you might think in

reading the press, the United States is

one of the few countries to really

brought down its carbon emissions by

using natural gas. And we have decades

and decades of supply of it at a very

low and attractive price.

So,

we need energy.

We better damn well build the data

centers in America.

Cuz they're going to get built somewhere

in the world.

And could you imagine how absolutely

insane it would be if we ended up having

to be dependent on foreign countries for

data centers?

I mean, like there's this whole not in

my backyard ethos in America today.

Okay?

Tell your data center provider, you want

to build a data center, build the

corresponding required power generation.

Don't put the cost on the American

consumer. Build the corresponding power

generation.

>> Yeah.

>> Tie the generator to the grid so that

you've got reliability by tying yourself

to the grid,

but build the corresponding generation

and build that damn data center in

America. It would

kill me if we end up having to pay a

bunch of foreign countries

tens or hundreds of billions of dollars

of money a year.

>> political issue in a number of states

now, as you as

>> It's a hot political issue and no one's

just take a step back. They're going to

get built.

>> Yeah.

>> Do you want them built here in America

or you want them built abroad?

Like, answer that question.

>> Maybe space.

>> Maybe space.

>> Another conference attendee asked how

Ken thinks about hedging portfolios for

complicated risks.

>> Stress test.

So, if if this happens,

how much money are you going to lose and

where?

That's that's what you're trying to get

your head around. And can is that loss

tolerable?

You'll never manage a portfolio for

every possible tail event, but you

should stay very focused on like what is

the worst case scenario? Can I tolerate

that loss?

And and monitor and maintain your

exposures such that that loss is a

tolerable loss. It may be an extreme

loss, but it's still tolerable

if that makes any sense.

>> Definable, tolerable.

>> Definable, tolerable, still in business,

still in a position to fight back from

that point.

>> Ken also got a question about the

outlook for hedge fund returns.

>> We believe the industry's cost of

capital is somewhere around the

risk-free rate plus 4%.

So, when when the industry I just long

run, we think that's the equilibrium

point. If the industry underperforms

that, capital will flow out. If the

industry outperforms that, capital will

flow in.

And in recent years, firms have on

general outperformed their cost of

capital, and there's still a flow of

capital into the industry.

That bigger capital under management,

all else equal, dilutes the the alpha.

Right? So, in some sense,

you know, one of the reasons that we

returned 25 or 30 billion dollars to our

LPs is to try to maintain a high return

on equity. We have a certain amount of

alpha we can produce every year. My job

is to try to increase the amount of

alpha we can produce every year.

How much capital do we need to support

that investment portfolio? To the extent

that we're over capitalized, put that

money back into your hands

to allocate into other areas of where

you can put the money to better use.

>> about that.

>> Try to be.

Try to be.

And this, you know, part of this is

alignment. The biggest investor in our

funds is my my partners and myself.

So, we think that that you should always

look for in the hedge fund community,

like, what is the alignment that you

have with the GP?

Are they in the asset management

business?

Or are they in the performance business?

>> This episode was recorded at Goldman

Sachs's Apex Symposium on June 2nd,

2026.

Thanks for listening. I'm Raj Mahajan.

>> The opinions and views expressed herein

are as of the date of publication,

subject to change without notice, and

may not necessarily reflect the

institutional views of Goldman Sachs or

its affiliates. The material provided is

intended for informational purposes only

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