Inside the Chicago hedge fund turf war between billionaire Ken Griffin and Dmitry Balyasny

CNBC/ Heidi Gutman

Sources say billionaire Ken Griffin projected an internal Balyasny email on a screen during Citadel's annual meeting.

• A big brother-little brother rivalry between Chicago-based hedge funds Citadel and Balyasny Asset Management has heated up, sources at both hedge funds say, as the firms fight for talent.
• Several sources point to Citadel's poaching of Balyasny's former business development head Matt Giannini last year as the spark for the current turf war.

The headquarters of Ken Griffin's Citadel and Dmitry Balyasny's eponymous hedge fund are separated by one mile, the Chicago River, and plenty of bad blood.

All hedge funds are rivals in some sense, fighting each other for talent, data, and alpha - though Balyasny and Citadel appear to be in different leagues, given their asset base and recent performance. But several sources have told Business Insider that the turf war between the two Chicago-based hedge funds has reached new heights.

The most clear example given by sources inside Citadel occurred in March during the firm's all-hands annual meeting when Griffin displayed an internal email Dmitry Balyasny sent his staff in April of last year with the subject line "Adapt or Die."

The email read "we are getting our butts kicked," with Balyasny saying his firm's long-short performance "sucks," according to a copy of the email seen by Business Insider. The email also mentioned that investors are wondering if staff joined Balyasny "so they can enjoy not working too hard."

A source close to Citadel said that Griffin used the Balaysny email as as an example of what "poor culture can do to a firm," noting that he also mentioned Enron in the same meeting. But sources inside Citadel say that their takeaway from the meeting was that they needed to beat Balyasny, not the benefits of a strong workplace culture. Sources also say it was not explained how Griffin obtained the internal email.

Balaysny wrote the email because he was "trying to light a fire under the team," according to one source at the firm, and pointed to the fact the firm fired a fifth of employees at the end of last year as how tough Balyasny can be when expectations are not met.

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Representatives for Citadel and Balaysny declined to comment.

Tensions between the two firms increased when Balyasny, which manages around $7 billion, began aggressively recruiting Citadel portfolio managers and analysts in 2017 and 2018, sources say.

But the poaching of Balyasny managing director of business development, Matt Giannini, by Citadel at the end of last year pushed the competition to a new level, according to several sources at both firms. Citadel created a new role for Giannini, who used to work at Citadel before joining Balyasny in 2012, that put him in charge of recruiting traders and other investment professionals in the fund's equities arms.

Lucy Nicholson/Reuters

Dmitry Balyasny speaks at the 2018 Milken Conference in Beverly Hills, California.

Griffin's firm also outbid Balyasny to retain fixed-income portfolio manager Nilsson Kocher this year after he had signed on to join Citadel's cross-town competitor, and recently hired away Justin Dodd, who had been a portfolio manager for Balyasny since 2013.

Balaysny, meanwhile has hired former Citadel staff including its former chief data officer Alex Lurye and Jeff Runnfeldt, who was once was the head of one of Citadel's now-shuttered equity arms, Ravelin Capital.

Both Lurye and Runnfeldt were let go by Citadel, a source close to Griffin said.

There's a difference in the type of talent the two sides have poached from each other, industry sources say, with Balyasny often bringing on Citadel analysts and associate portfolio managers and promoting them. Citade, meanwhile, has been able to pry away more senior Balyasny employees.

"These firms are at different points of inflection with regard to scale, resources and ability to compete for talent. I would not categorize this as 'rivalry between two Chicago firms.' Citadel's footprint is well beyond that," said Ilana Weinstein, CEO of the hedge fund recruiter IDW Group.

Performance-wise, Citadel has had the upper hand on Balyasny recently. Griffin's flagship Wellington fund returned more than 9% last year while Balyasny finished down 7%.

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Balyasny also shuttered his long-running "best ideas" fund due to poor performance last year, and several top marketing and IR personnel have left this year including IR and marketing managing director Stephanie Mesheski and global head of platforms Rich Arbucci, sources say.

But a recent investor letter from Balyasny states that they have re-built its investment teams with 10 new portfolio managers and 39 analysts since the start of the year, including six new portfolio managers from Citadel, such as Elliot Wilson, Johnny Bubb, Chris Adams, and Peter Gong. Wilson was a portfolio manager in Citadel's Global Equities division, while Bubb, Adams, and Gong were all analysts while working for Griffin.

Both firms are up this year, with Citadel notching returns of 6.35% through March and Balyasny up 4.2% through the same time. The S&P 500 is up more than 13% over the same time.

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