Citadel's Ken Griffin on AI, US-China Tensions, and US Data Centers

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 monitor and maintain your exposures such that that loss is a tolerable loss. It may be an extreme loss. But it's still tolerable.

So, two things jump out with that question. The first is we were extremely early to bring everybody back to work. And in some sense, it was almost counter cultural to demand your team to come back to an office five days a week. And yet, I think that was an incredibly important part, not only to the success that you spoke of, but more importantly, of continuing to develop our human capital. I think as a country, the amount of human talent that has been underdeveloped because of working remotely has had a significant damaging impact on our economy. And recently, the Fed published a paper where they looked at factors that have caused reduced employment amongst those under the age of 30. And people would say, 'Well, how much of this is the AI story?' Well, it 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 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 and growth. And bringing people back into our four walls aggressively early, both drove results for our limited partners, but more important helped 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 COO of a major New York hospital system, Dan Widawsky. 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, why are you calling me?' And he says, 'Because there's no one else who I think could actually make this happen but you.' Warp speed. 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 rally resources around this 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 of 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 distances and 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. Wait for the FDA results. Then move to manufacturing. And lose three to six months-- And that was 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 who ultimately may not work and therefore will be literally flushed down a sewer system? So, this was all about the US government taking the risk to fund the manufacturing 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 that I'm most proud of.

So, 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 is obviously the potential threat of what 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 have we seen 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 are 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 their demand for oil. Much more elasticity of demand out of China than anybody had anticipated.

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. 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 craters that will get out with LNG. You'll see the oil cargos leave. We've managed to keep oil at roughly low hundred-dollar price versus I would say most estimates would have put us at this point in this war, if the straits are closed, we'd be looking at almost $200 a barrel.

So, we're going to cover a war. We're going to cover shocked and depressed from AI. Is there a happy ending to this conversation today? I mean, I'm saving China for later.

Okay, great. So, 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 the US economy in just a plethora of ways from reading radiological reports to self driving cars to use ChatGPT to rewrite the email that you drafted for the last two minutes. And it does a much better job than we seem to be able to do. So, the big picture is the United States has been undergoing a digital revolution yet again over the last decade which has accelerated on the back of the AI revolution.

And I'll share just a quick story with you. I was with a number of leaders of global multinationals about two 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 or five incredible stories of how companies were achieving meaningful productivity gains. Not one involved AI.

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 writ 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 talk about the S&P at all time highs. Corporate earnings in America are at all time highs. I mean-- The multiple has actually come down because of that. It's unbelievable the growth earnings over the course of just the last 12 months, 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 important point number one.

On the going home depressed on a Friday, I'll actually give you the use case. One of our team members built an agentic 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 interesting work. We find a few ideas when you're 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 of this work in about, on average, two to three hours per paper.

Right? So, here, and here's the key point, this is not just a white-collar job, this is a Master's or PhD level job. Six weeks of work turned into-- OpenAI just solved a math problem that no one had solved for 80 years. Yes. So, what you're seeing is you're seeing AI able to take on some really difficult tasks and crack problems that I think most of us would have viewed beyond the reach of AI just two or three 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 are a lot of implications. Now, of note, there's no reduction to headcount at Citadel on the back of this breakthrough, right? I have incredibly talented people. We have just a huge swath of problems that we're trying to attack and go after. I will take every single productivity gain I can get because with the talented people we have, we just have more to go after.

Well, but 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 go home and have two thoughts in your mind at the same time. Wow. Think about the impact of this on very high-level work in the job market. And in some areas, it's more difficult to transition the employees. For example, if you do translation. You translate from English to German. 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 moats of our society, within our corporate society, are all being filled and at 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 five, 10, 15, 20 years ago. And without getting into the details of the business, a friend of a friend has a startup. Would generally have 30 or 40 people. Couldn't afford that many people. How's he run the business with just a few? Agentic AI systems. We're going to see a lot of these stories come to light over the next couple of years as entrepreneurs embrace this technology to really take on some very interesting opportunities to create value by meeting the needs of customers.