Citadel to Pay Hedge Funds for Trading Signals

Citadel plans to launch a Global Quantitative Strategies programme that will pay external hedge funds for proprietary trading signals. The firm will analyse the signals and may integrate usable ideas into its systematic models.

The programme will be run from the Global Quantitative Strategies (GQS) unit and will seek investment ideas from established discretionary portfolio managers. Participants will receive compensation for actionable trading signals that Citadel’s quantitative teams can test and potentially convert into automated trading strategies.

People familiar with the plans described the initiative as a way to broaden sources of trading signals beyond sell-side research and internal models.

GQS combines quantitative research with discretionary inputs. Navneet Arora, head of GQS, wrote that the unit “has long combined quantitative research with discretionary inputs to inform its investment process.” Arora has led the unit since 2019 after joining Citadel in 2013 as a senior quantitative researcher.

The concept, often called alpha capture, collects external investment views and converts them into tradable signals. The method was pioneered more than 20 years ago and originally relied heavily on sell-side recommendations. Firms have since adapted the model to include ideas sourced directly from buy-side managers.

Citadel has operated a sell-side focused alpha-capture platform, Alpha League, since 2008. The new programme will extend that approach by soliciting proprietary insights directly from hedge funds.

Other large multi-manager firms, including Millennium Management and Point72 Asset Management, have pursued similar strategies to access differentiated signals and expand investment capacity.

At the start of May Citadel managed roughly $68 billion. A person familiar with the firm’s results reported the Tactical Trading fund gained 2.3% in May, bringing year-to-date returns through the end of May to 10.8%.

Details on compensation structures, data handling and the timeline for rollout were not disclosed by those familiar with the plans.