Latest / The Capitalism and Freedom in the Twenty-First Century Podcast / Is Miami Becoming Wall Street South? With Citadel Securities President Jim Esposito | Hoover Institution

Transcript

Is Miami Becoming Wall Street South? With Citadel Securities President Jim Esposito | Hoover Institution · The Capitalism and Freedom in the Twenty-First Century Podcast

• 0:08
  - Thank you everyone for being here
• 0:11
  and for coming to the third annual Miami Economic Forum
• 0:14
  hosted by the Economic Club Miami.
• 0:16
  This talk is also a live recording of the Capitalism
• 0:20
  and Freedom in the 21st Century podcast
• 0:22
  of the Hoover Institution, where we talk about economics,
• 0:25
  markets and public policy where I'm,
• 0:27
  I'm Jon Hartley, your host.
• 0:29
  I'm really excited to speak with Jim Esposito today.
• 0:33
  Jim is the president of Citi Citadel Securities,
• 0:36
  where he's responsible for driving the long-term growth
• 0:38
  of the firm's global client and partner relationships.
• 0:42
  He previously worked at Goldman Sachs for 29 years,
• 0:46
  where he was co-head of Global Banking
• 0:48
  and the Global Banking and Markets division.
• 0:50
  He was also the co-head of the Investment Banking
• 0:53
  and Global Markets Division divisions separately
• 0:56
  before they were merged to both the investment banking
• 0:59
  and broker dealer divisions.
• 1:00
  He served on the management committee.
• 1:02
  He co-chaired the partnership committee.
• 1:05
  He also earned his BA at Brown where he is a trustee
• 1:08
  and he also holds an MBA from from the Tug School
• 1:13
  of Dartmouth University,
• 1:14
  where he is also on the Board of Overseers.
• 1:16
  Welcome, Jim, really thrilled to have you here.
• 1:18
  - Thanks John, for having me.
• 1:19
  I wish you would've said, but you look so young
• 1:22
  given all those accomplishments,
• 1:24
  so you missed that moment for me.
• 1:27
  - Well, well you do. So I appreciate it.
• 1:31
  - Never too late. - I appreciate it
• 1:34
  and appreciate you being here.
• 1:36
  And you know, we're sitting here in Miami,
• 1:39
  some call it Wall Street South.
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  I know our audience is very familiar with Ken Griffin,
• 1:45
  Citadel's founder.
• 1:47
  We had a chance to speak with Ken a few years ago here,
• 1:51
  but I suspect that folks may not be as familiar
• 1:53
  with Citadel Securities.
• 1:55
  I'm curious, you know, what's your,
• 1:57
  what is Citadel Securities role in financial markets?
• 2:00
  - I think that's a great place to start, John.
• 2:03
  I do think there's sometimes a lack of understanding.
• 2:07
  You know, when people hear Citadel, the meta brandand,
• 2:10
  and I'd start from this place of reminding the group
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  that Ken Griffin didn't just found one incredibly
• 2:15
  successful company.
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  He actually found it too.
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  I find people are very familiar with Citadel,
• 2:21
  the asset manager.
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  That's the hedge fund side.
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  The hedge fund is generally considered
• 2:27
  to be the most successful hedge fund ever launched,
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  and that's based on the return performance of that fund.
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  I have nothing to do with Citadel the hedge fund.
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  So I am president of Citadel Securities.
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  We like to think of ourselves as a next generation,
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  really a technology driven market maker.
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  We make markets to clients across global equities
• 2:53
  and fixed income.
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  Many of you would see the big trading floors in New York
• 2:58
  that a bank like JP Morgan, Morgan Stanley,
• 3:01
  Goldman Sachs has, we're the equivalent of those big banks
• 3:06
  In global equities where we are particularly big,
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  I would suggest we're actually bigger than those same
• 3:14
  banks that I just named.
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  We trade more equity flow than anybody
• 3:19
  else around the globe.
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  And when I sort of, you know, go through
• 3:24
  what we actually do in equities,
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  I think this will inform the group's thinking
• 3:27
  for the talk we're about to have,
• 3:29
  we execute equity volumes through three distinct channels.
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  The first is our on exchange market making business to put
• 3:39
  that business in context on any given day,
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  we're about one third of the volume
• 3:44
  that gets executed on the New York Stock Exchange.
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  So very, very big on exchange presence.
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  The second place we have a large client presence is in the
• 3:55
  retail market around the globe,
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  but particularly here in the US we account for about 35
• 4:02
  to 40%
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  of all retail flows across single shares
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  and equity options.
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  So if any of you have an account at Robinhood
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  or Charles Schwab
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  or many other retail brokers, we're basically the,
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  the execution engine for those platforms.
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  Dominant retail presence.
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  And then the third place we meet clients is directly
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  with the biggest institutions in the world.
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  These would be names you recognize from BlackRock
• 4:33
  to Fidelity Capital Research, pimco, all
• 4:36
  of the large sovereign wealth funds, insurance companies,
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  pension funds, and hedge funds.
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  So you know where the 800 pound gorilla in markets.
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  And we'll talk a little bit about
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  how we accomplish all that. I'm sure
• 4:51
  - It's, so I'm just curious like what,
• 4:53
  what makes Citadel Securities different
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  or what sets it apart from say like JP Morgan or
• 4:58
  or Goldman Sachs, I know JP Morgan, Goldman Sachs,
• 5:00
  or I think bank holding companies.
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  How is Citadel Securities different in,
• 5:05
  in this market making business?
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  - Yeah, in a couple ways.
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  We are solely,
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  I should say maniacally focused on market making.
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  We don't have an asset
• 5:15
  and wealth management arm as I suggested.
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  Ken has the separate hedge fund.
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  We don't have an investment bank attached to us.
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  We don't underwrite IPOs
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  or debt issuances solely focused on market making.
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  But importantly I would say versus the traditional big
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  banks, we have two, what I like
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  to think are competitive advantages.
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  The first is we have achieved an operational scale
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  and efficiency by leveraging technology
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  that I think is really the envy of not just the banks
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  but maybe any other company on the planet.
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  And I say that because we account
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  for about just shy of 25%
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  of daily US equity flows.
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  And we only have 1900 professionals in all
• 6:06
  of Citadel securities.
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  If you were to look at the headcount,
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  those big banks have against the same opportunity set.
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  They have 10,000, 15,000,
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  20,000 employees doing middle and back office settlements.
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  The banks talk about now leveraging tech technology
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  generally incorporating AI to become more efficient.
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  I would suggest we've already accomplished that.
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  And so we were a company built
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  and founded on the principles
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  that technology is the best way forward.
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  We've been at this now for well over 20 years
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  and we've extracted that technology dividend in the way
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  that maybe some of your own companies are only now starting
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  to think about the second competitive advantage
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  that we enjoy.
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  We're very good at monetizing very basic
• 6:59
  trading flows.
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  And the reason for that is we really sit at the intersection
• 7:05
  of where finance meets quantitative research
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  and technology.
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  And so when I look at the composition
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  of our 1900 professionals, about 300
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  of our employees hold a PhD.
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  And these PhDs are kids that come
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  to us from literally the best schools around the globe.
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  And these are kids that got a PhD in math, statistics,
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  computer science and physics.
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  We attract the best
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  and I mean the very best in those STEM educational fields.
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  Our CEO pun JAO was born in China,
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  came to the US to get a PhD in statistics at Cal Berkeley.
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  P is very much a talent magnet attracting, you know, some
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  of the brightest PhD mines in our country.
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  By the way, many of them actually sit here in Miami.
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  We have a big quantitative research
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  and capability here in Miami.
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  It's that operational scale
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  and efficiency combined
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  with this quantitative researching capability
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  that I think sets us apart.
• 8:16
  - Well terrific. Well, I wanna get back to you
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  and get into your origin story a little bit.
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  So where did you grow up
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  and how did you get interested in finance to begin with?
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  - You're gonna make me blush or cringe
• 8:26
  that I have to talk about myself.
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  I'd rather talk about Citadel Securities,
• 8:29
  but I'll give you the high level basics
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  and look you, you ran through, well my background,
• 8:36
  my educational background
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  and my previous professional background.
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  But I'd just say a couple of things maybe just to kind of,
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  you know, understand what makes me tick.
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  I did grow up in the state of New Jersey.
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  I was a product of the public education system.
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  I have two older brothers.
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  And the reason I mention is when I think about my younger
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  formative years, I grew up in a household, you know,
• 9:01
  particularly with my two older brothers where we competed
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  in anything and everything.
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  I grew up with a love for competition.
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  A lot of that manifested itself in sports.
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  I don't know if any of you are familiar
• 9:15
  with the sport of wrestling.
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  I was a decent student in high school,
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  but I wasn't even better.
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  High school wrestler. Wrestling is the ultimate
• 9:25
  competitive sport.
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  It's a one-on-one sport.
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  You learn to compete, you definitely learn to lose,
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  pick yourself up and go again and again and again.
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  There's a really grinding element to the support
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  of wrestling that I think rhymes with the success
• 9:46
  that I've had in my career.
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  I think it's a really important part of
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  who I am as a professional.
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  Even though wrestling was a long, long time ago,
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  I actually got recruited to wrestle at Brown University
• 9:57
  where I majored in political science and economics.
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  So John, I know you're proud of me
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  and that that was an important time in my life.
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  When I fast forward that to thinking about Citadel.
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  And here I will be specific to Ken Griffin.
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  I've never met anyone
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  and I literally mean anyone who has a love
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  for competition, quite like Ken.
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  Ken is the ultimate, I mean the ultimate competitor.
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  I think it's easy to say Ken loves to win and he does win,
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  but it's that love for competition.
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  This notion that we come in every day with a mindset
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  and a mentality that we wanna get a little bit better,
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  a little bit better every day
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  and then compound that success over a longer period of time.
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  We play to win at Citadel Securities.
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  We talk about that a lot When we enter a new business line,
• 10:54
  a new product.
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  We'll only do it if we think we can win winning.
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  For us it means being the best, being number one in
• 11:02
  that given product or that given area.
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  Ken sets that winning mentality, that love of competition
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  through the entirety of Citadel.
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  It might not resonate with everyone.
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  I think for the people that stay, that is a common thread.
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  We share this spirit of competition
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  and winning set by Ken.
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  And so my early background aligns quite well,
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  I think with the culture at Citadel.
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  - So fast forward here, I'm just curious for about,
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  you know, 30 years in senior leadership sproles at Goldman
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  Sachs and New York and London.
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  I mean, why did you leave the world of large New York banks
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  for a market making firm and now a life here in Miami?
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  - Yeah, I think that's actually an interesting question.
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  So I left Goldman Sachs
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  after just shy of a 30 year career.
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  Goldman Sachs is a preeminent,
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  maybe the preeminent global investment bank.
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  I had a an amazing career there.
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  I loved every single minute of it
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  and I got to have a really diverse career there.
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  So at some point in my career I co-ran the global capital
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  markets business, which warehoused all the new issuance
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  for equities and debt securities.
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  I co-ran global investment banking
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  and then I co-ran the global markets business where equity
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  and fixed income trading resided.
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  So I got to do pretty much everything on offer
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  and I climbed that mountain
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  and I thought it was an amazing time.
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  And then I got to a place in my career
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  where I realized if I were gonna stick around
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  for the next five years, it was gonna be a little bit of,
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  you know, shampoo, rinse, repeat.
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  I wasn't that young, but I was young enough
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  to know I could go out and do something different.
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  I think I did something hard.
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  I think my spouse thought I was crazy.
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  But really at the, you know, kind of the top
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  of my career there, I decided it wasn't obvious.
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  I had one more rung to climb there.
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  And while I didn't know exactly what I wanted to do,
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  I think I had a checklist in my mind of things
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  that I wanted to try.
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  And in that checklist would've been things like I wanted
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  to do something more entrepreneurial.
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  I wanted to join a faster growing company on the margin.
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  I wanted to be a private company, not a public company.
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  'cause I thought that could be an interesting challenge.
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  And then I was hoping to kind of ride some of the trends
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  of the things that I talked about earlier, technology, ai,
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  and to see if I could find a place
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  where I could lever the skills
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  that I had built up over my 30 year career,
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  but maybe deploy them into the faster growing
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  side of the economy.
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  So I, I had that in my head
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  and that I decided I was gonna leave.
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  It was emotional for me and for many at the firm.
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  And so that's what I did.
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  And I'll tell one quick story
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  'cause I think people always do enjoy Ken's stories.
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  So the day my announcement came out from Goldman Sachs
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  that I was leaving, I had decided I was just gonna sit in
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  my, I was based in London at the time,
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  was gonna sit in my office
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  and just enjoy that moment, 30 years of hard work,
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  of real, you know, sweat equity that I put into that,
• 14:33
  that place in that job.
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  So my announcement comes out, it was a surprise to many,
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  it crosses the tape.
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  I'm in my office, my phone's blowing up,
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  my email's blowing up, people are trying to come in
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  and I was just, just sitting there kind
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  of taking in the moment.
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  I shut my ringer off on my mobile phone.
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  I wasn't gonna answer any calls,
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  but at some point early on, I looked down at my phone
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  and I see this name scrolling across Ken Griffin.
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  Ken Griffin, Ken Griffin.
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  I was like, well boy,
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  there's gonna be one carve out for my rule.
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  I'm not gonna answer my phone. It's, it's gonna be for this.
• 15:10
  I knew Ken a little bit,
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  but we didn't have a deep relationship.
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  So I picked up the phone
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  and Ken was incredibly upbeat and energetic.
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  He said he had seen my announcement
• 15:21
  and it was amazing timing.
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  And I said, why is it amazing timing?
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  He said, I've been thinking about you, Jim,
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  I think I have the perfect next opportunity for you.
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  I was respectful. I said, Ken, that's amazing
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  that you're thinking about me.
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  That's exciting, but I need a little time.
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  I promised my wife and kids, you know, I was gonna detox,
• 15:44
  certainly take more than a couple months off.
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  Washed the Goldman Sachs out from under my fingernails.
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  And I said to Ken, you'll be the first person I come to see.
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  So just, you know, gimme some time,
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  couple months I'll leave London, I'll come through Miami
• 15:59
  and I'll come see you, but you'll be the first.
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  Ken said, yeah, that doesn't work for me.
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  Said, what do you mean?
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  He said, I told you I have something for you
• 16:10
  that's incredibly exciting.
• 16:12
  I have an amazing opportunity for you.
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  I tried one more time. I said, no, no, Ken,
• 16:16
  I understand I'll, I'll, I'll, I'll get there.
• 16:18
  He literally said, Jim,
• 16:21
  I'm free next Tuesday afternoon in Miami.
• 16:23
  My assistant's gonna call you
• 16:25
  to follow up on your flight details.
• 16:27
  I'll see you next Tuesday. Click.
• 16:32
  I was an hour early for that meeting with Ken
• 16:36
  and that started an amazing discussion
• 16:40
  and ultimately an amazing journey that took me from London
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  to here in Miami where I've been, you know, for just shy
• 16:46
  of two years, about 18 months now at Citadel Securities.
• 16:51
  And I'm not only glad I picked up that phone call,
• 16:53
  I'm super happy that Ken is Ken
• 16:55
  and doesn't take no for an answer
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  - That that's amazing.
• 16:59
  That that's a a great story.
• 17:01
  You gotta jump on opportunity while it's, while it's there.
• 17:04
  So, so you, okay, so you lived in New York, lived in London,
• 17:07
  Miami, worked in finance and all these places.
• 17:09
  How would you contrast these experiences? Exactly.
• 17:13
  - So look, I think I had a great privilege to live
• 17:17
  and work in three of the most dynamic
• 17:20
  and important financial centers in the world.
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  First New York, then London for almost 15 years.
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  And now in Miami, I think all are amazing
• 17:29
  for different reasons,
• 17:31
  but let's, let's focus on Miami as a financial center
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  and as a financial hub.
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  It's early for me here,
• 17:39
  but in some ways Miami rhymes with some
• 17:42
  of my experiences in London.
• 17:44
  And at first blush, of course
• 17:46
  that comment doesn't make any sense,
• 17:48
  but what did well as a financial center,
• 17:52
  it really built interesting ties
• 17:55
  and bridges to the rest of the world.
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  Now London did that well
• 17:59
  because the geography set up well, you know, in terms
• 18:03
  of the time zone.
• 18:04
  It linked back to the rest
• 18:05
  of the world maybe better than New York,
• 18:08
  perhaps New York benefits.
• 18:10
  It's so big and so important.
• 18:13
  It's almost like its own self-contained ecosystem.
• 18:16
  What I'm seeing and feeling in Miami,
• 18:19
  it's obviously particularly true at this time of year.
• 18:22
  Miami is a destination as an amazing place.
• 18:25
  And so whether it's FII with the, you know,
• 18:28
  Saudi Arabian delegation coming here,
• 18:32
  the natural ties back to everything.
• 18:34
  And everywhere in Latin America, Miami
• 18:38
  as a destination is incredible.
• 18:41
  This time of year every major bank hosts a financial
• 18:45
  services conference.
• 18:46
  Every hedge fund is coming through.
• 18:49
  And so sometimes people say, well,
• 18:51
  is Miami gonna be big enough?
• 18:52
  Do you have a natural ecosystem?
• 18:55
  I have no reason to be in New York at this time of year.
• 18:58
  Everybody comes through and I see everybody here.
• 19:01
  So my client game at this time
• 19:03
  of year is actually better than it would be in New York.
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  And so I think it's important for, you know,
• 19:09
  local officials, policy makers, to continue
• 19:13
  to build those bridges back to the rest of the world.
• 19:17
  I think that's a way to accelerate Miami's growth
• 19:20
  as a financial hub and a financial center.
• 19:22
  I think it's doing it well.
• 19:24
  I'd be particularly focused on now can we build, you know,
• 19:27
  deeper bridges to Asia.
• 19:30
  I think there's opportunities there.
• 19:31
  So that's very much on my mind.
• 19:36
  Look, the, the obvious things that I'd, I'd say about Miami,
• 19:40
  and perhaps we can talk about this in some
• 19:41
  of our other experience that you mentioned
• 19:43
  to me in the green room, you know, Miami has,
• 19:46
  Florida has such a positive can-do attitude,
• 19:51
  the way that the local community, the way that, you know,
• 19:56
  public sector officials have embraced us as a company
• 20:00
  is like something we hadn't seen before.
• 20:03
  And so this public and private sector partnership
• 20:08
  and cooperation and collaboration is noteworthy here.
• 20:13
  It means a lot to us as an institution.
• 20:16
  There's a can-do positive attitude
• 20:18
  of solving problems together
• 20:20
  and wanting to really lift the entire society here
• 20:24
  to make the education programs better and better and better.
• 20:28
  And so we're a part of this vibrant community.
• 20:31
  It's working for our leadership group, it's working
• 20:33
  for our junior people.
• 20:35
  And so Miami is a very, very special place.
• 20:39
  And I'm glad that my career, you know,
• 20:41
  kind of followed that journey.
• 20:43
  - So, so maybe Miami can call itself Wall Street South soon
• 20:47
  with Citadel Securities.
• 20:50
  We've got, you know, Carl Icahn, a lot of hedge funds
• 20:53
  that are here now, obviously, you know, founders fund a lot
• 20:56
  of VC firms that are here.
• 20:58
  It's going, I I feel it as well.
• 21:01
  I wanna talk about, I guess one famous story related
• 21:04
  to South Florida and Citadel Securities,
• 21:07
  and this was during COVID,
• 21:09
  the Citadel Securities famously built a trading floor in,
• 21:13
  in Palm Beach in about a week
• 21:16
  at the Palm Beach Four Seasons.
• 21:18
  And so you, by the numbers that you were giving earlier,
• 21:22
  I think, you know, you're handling, you built basically a,
• 21:26
  a setup and I presume some sort of a dining room
• 21:30
  or a conference hall that was handling like 20, 25%
• 21:34
  of the US equity trading flow
• 21:36
  or something like that in, in, in a week.
• 21:38
  I mean, what prompted that
• 21:40
  and how did it translate into your sort
• 21:41
  of ultimately moving your headquarters to here,
• 21:45
  south Florida, Miami from Chicago?
• 21:47
  - Yeah, this might be the most Citadel securities esque
• 21:51
  story I could tell.
• 21:53
  And there's a lot in it in terms of what makes us tick
• 21:58
  and for our company, it's actually is our founding roots
• 22:01
  and our origin story here in the state of Florida.
• 22:04
  So obviously COVID was an incredibly difficult period.
• 22:08
  The vast majority of us in the room
• 22:11
  and pretty much every other company around the globe opted
• 22:14
  for a work from home strategy
• 22:17
  and that had varying degrees of success.
• 22:20
  But that was pretty much the only choice on the menu
• 22:23
  unless of course you're Ken Griffin.
• 22:26
  So Ken for a variety of reasons,
• 22:29
  but I would just highlight two.
• 22:31
  One is we do play a critical role in the capital markets.
• 22:36
  I referenced the amount of securities we trade every day.
• 22:41
  We were really nervous and worried about the safety
• 22:44
  and security and the functioning of the capital markets.
• 22:48
  We play a vital role
• 22:50
  and we take that responsibility incredibly seriously.
• 22:53
  The reliability
• 22:54
  and the durability of our technology stack
• 22:57
  to service clients.
• 22:59
  We think about that responsibility every single day.
• 23:03
  We account for just shy of 25% of equity volumes.
• 23:08
  But what Ken and Pong tasked the leadership group at Citadel
• 23:12
  Securities with was not just to be able to accommodate
• 23:15
  or normal flows.
• 23:17
  The homework assignment was
• 23:19
  what if nobody else can get up and running?
• 23:23
  We want Citadel Securities to build an ecosystem
• 23:27
  and a trading floor in a single hub
• 23:31
  that can accommodate a hundred percent
• 23:34
  of equity trading volumes.
• 23:35
  Let's assume no one else gets up and running.
• 23:38
  How are we gonna do that?
• 23:40
  Wow, working from home with that
• 23:42
  as your homework assignment didn't seem like
• 23:45
  that was gonna be a winning hand.
• 23:47
  And so through a lot of determination
• 23:50
  and a lot of local support,
• 23:52
  we rented the Four Seasons Hotel in Palm Beach
• 23:57
  and basically took over the entirety of that hotel.
• 24:01
  Not only did we live up to that challenge,
• 24:04
  we accomplished turning ourselves on
• 24:08
  and having the ability, we didn't need to do this
• 24:11
  to trade a hundred percent of us equity flows.
• 24:16
  And we did that in less than one week
• 24:19
  now to accomplish that.
• 24:21
  It wasn't just Citadel securities brilliance or leadership.
• 24:25
  We needed a heck of a lot
• 24:26
  of support from the local community infrastructure
• 24:30
  around the technology.
• 24:32
  We run broadband
• 24:33
  and wifi access a bunch of other things.
• 24:37
  Brave people who worked with us in the bubble
• 24:41
  that we created, I should highlight, we wanted
• 24:44
  to keep our own people
• 24:45
  and everyone else who was supporting us safe and secure.
• 24:48
  So we created this COVID bubble in the Four Seasons
• 24:51
  in Palm Beach.
• 24:53
  It worked incredibly well.
• 24:56
  And I say that was a part of our origin story
• 24:59
  that really was the entry point for Citadel in Florida.
• 25:03
  Our people got there, the sun is shining,
• 25:06
  it's an incredibly vibrant place.
• 25:08
  The beach is right there. What's not to like.
• 25:11
  These are people who were working in Chicago at the time,
• 25:14
  and so many, if not most of our people in
• 25:18
  that Florida COVID bubble fell in love with it.
• 25:22
  And again, going back to the partnership, public
• 25:25
  and private, it served us incredibly well.
• 25:28
  We then decided for a bunch of reasons,
• 25:31
  Miami is gonna be the destination
• 25:35
  and off, you know, we went running and, and here we are.
• 25:38
  Last thing I'll say about that experience, if any
• 25:41
  of you have been or happen to go
• 25:42
  to the Four Seasons in Palm Beach,
• 25:45
  you can send me a thank you note.
• 25:47
  I think to this day, the Four Seasons,
• 25:50
  Palm Beach has the best
• 25:52
  and fastest wifi service of any hotel around the globe.
• 25:57
  And that is a true story.
• 25:59
  - That's amazing. So such a great and an amazing story.
• 26:04
  Just, you know, talking about that whole can-do attitude,
• 26:07
  I think really as, you know, reflective, embodied in terms
• 26:11
  of what, how Miamians and self Floridians think.
• 26:15
  I wanna sort of pivot a little bit to global markets here
• 26:18
  and, and the global economy.
• 26:20
  I mean, how, how would you characterize the currency
• 26:22
  of the economy and markets?
• 26:23
  I mean, we've got tariff uncertainties back a bit.
• 26:26
  We've got, you know, public debt as a factor
• 26:28
  of GP is high in the US and, and many advanced economies.
• 26:32
  AI seems to be disrupting one industry after another.
• 26:36
  I mean, are you constructive on markets right now
• 26:38
  or are you defensive?
• 26:41
  - I think the foundation of the current
• 26:44
  global economy is incredibly strong.
• 26:49
  We might actually be in a Goldilocks scenario right now,
• 26:53
  we're seeing robust economic growth,
• 26:58
  reasonably low inflation.
• 27:00
  And you know, we're, we're,
• 27:03
  we're seeing an ability right now to lever technology,
• 27:06
  not just at a place like Citadel,
• 27:08
  but in the real economy that leaves us very constructive
• 27:12
  and very optimistic.
• 27:13
  Now against that strong foundation
• 27:16
  and backdrop, there's a lot of fragility, a lot
• 27:20
  of uncertainty, geopolitics obviously the, the,
• 27:25
  the divisiveness that we see in our own country
• 27:29
  makes the world both fragile and complicated.
• 27:33
  Now, John, you said it, I think ultimately now
• 27:38
  we're in a foot race between the growing stock of US debt
• 27:44
  and the amount of money that it costs, the growing money
• 27:48
  that it costs to service that debt versus
• 27:51
  what is an ever accelerating pace of change
• 27:56
  and productivity gains brought about by ai.
• 28:01
  I think the optimistic scenario is we can grow
• 28:04
  our way out of this.
• 28:05
  That AI is gonna lead to sufficient productivity gains.
• 28:09
  That stock of debt won't become a problem
• 28:13
  if somehow AI fails us
• 28:15
  and we don't achieve the productivity gains
• 28:18
  that might be priced in right now.
• 28:21
  At some point in the future we'll have a real
• 28:24
  existential moment.
• 28:26
  I'm not at all suggesting that's imminent.
• 28:29
  I'm not all suggesting we have to face that moment,
• 28:33
  but this footprint f race
• 28:34
  between productivity gains brought about by technology
• 28:39
  and what has been, you know, a lack of discipline in terms
• 28:42
  of cutting back government spending, that's where we are.
• 28:46
  Last point that I'd raise probably more just a a a personal
• 28:50
  view, but all of you have lived this alongside of me.
• 28:54
  I would just remind the group, you know, the last 15 years,
• 28:58
  it's certainly true in this country,
• 29:00
  but it's also true around the globe
• 29:03
  has really been an abnormal artificial period.
• 29:07
  And you think about the 2008 global financial crisis,
• 29:12
  the amount of both monetary and fiscal stimulus
• 29:16
  and accommodation that was pumped into markets.
• 29:19
  We got an extra big dose of that during the COVID period.
• 29:23
  We got another dose of that.
• 29:24
  You know, at the end of the Biden administration,
• 29:28
  I think we've probably lost a certain amount
• 29:31
  of discipline in financial markets.
• 29:34
  If you're an investor buying the dip has made, you know,
• 29:38
  all the sense in the world
• 29:40
  because there's always been a government backstop or put
• 29:45
  and there's been no penalty for making mistakes.
• 29:48
  There's been no penalties
• 29:49
  for being undisciplined generally.
• 29:53
  And I'm simplifying, I think every type
• 29:56
  of investor is stretched 1, 2, 3 categories
• 30:01
  out further on the risk spectrum than he
• 30:04
  or she maybe needs to be
• 30:06
  because we've lacked a discipline from this extraordinary
• 30:10
  abnormal artificial period so far.
• 30:15
  We've managed to take interest rates that were negative
• 30:18
  for a period of time, then they hovered around zero
• 30:20
  for a period of time up
• 30:22
  to a slightly more normal level.
• 30:26
  But I still worry about how do we wean markets
• 30:31
  off the sugar rush that was needed for a period of time,
• 30:36
  but potentially with the benefit
• 30:37
  of hindsight now was either too much or too long.
• 30:43
  I'm not sure we've completely walked
• 30:46
  to the final end of that tightrope.
• 30:48
  And I think markets are still grappling with that as well.
• 30:51
  So foundation incredibly strong, almost Goldilocks,
• 30:56
  but the picture around that foundation very,
• 31:01
  very complicated.
• 31:02
  Very, very fragile.
• 31:04
  - So I wanna talk more about AI
• 31:07
  because you, you can't really pick up the newspaper on any
• 31:10
  given day, not here about AI in some way.
• 31:15
  Tons of capital expenditure on the part of hyperscalers.
• 31:18
  You've got, you know, questions about potential labor market
• 31:20
  effects, these, these incredible new tools that seem
• 31:24
  to be coming out every day, you know,
• 31:27
  whether it's cloud code or, or or,
• 31:29
  or many of these other, you know, agent AI applications.
• 31:32
  There's you questions about your hallucinations,
• 31:35
  the, the list goes on.
• 31:37
  Where do you think we're at in this AI journey right
• 31:39
  - Now?
• 31:41
  Well, we're definitely in the very, very early innings,
• 31:46
  but to your point, most recently, you know, some
• 31:50
  of the large language model releases
• 31:52
  and you reference Claude, very significant
• 31:58
  game changing, transformational.
• 32:01
  And so when I say we're in early innings,
• 32:04
  but we're, we're about
• 32:05
  to ride a wave like one we've never seen before.
• 32:10
  And look, I, I think you pull on that string
• 32:12
  and you can get to, you know, some pretty heady,
• 32:16
  interesting societal debates.
• 32:19
  Some of them are playing out this week in the general press.
• 32:23
  You know, I mentioned something about our love for the state
• 32:26
  of Florida and Miami
• 32:28
  because I think, you know, local officials,
• 32:31
  policymakers have partnered with us in the private sector.
• 32:35
  Well on this AI debate, at a minimum, I think we need
• 32:40
  to start to have these types of discussions.
• 32:43
  And so I don't subscribe to a way of thinking
• 32:47
  or a view that none of us are gonna have jobs
• 32:50
  or the machines are gonna do everything for us.
• 32:54
  But if there were ever a period in history
• 32:56
  where we should be discussing upskilling
• 33:00
  and education
• 33:02
  and building a labor force fit for purpose in a world
• 33:07
  where we're heading into autonomous driving,
• 33:09
  I see many Waymo's, you know, cruising around Miami.
• 33:14
  I mean you'll be in touch,
• 33:16
  but trust me it's coming to a theater near you.
• 33:19
  The, the physical man physical manifestation
• 33:22
  of AI is gonna be robotics.
• 33:25
  You know, if you go to China, if you go out
• 33:27
  to Silicon Valley
• 33:29
  and get a proper demonstration about where
• 33:32
  robotics are heading, it's mind blowing.
• 33:35
  And so we have to set up our labor force, by the way,
• 33:38
  for the most entry level for, you know, more mundane tasks,
• 33:43
  menial labor jobs,
• 33:45
  but right up to the most important white collar jobs.
• 33:49
  It's gonna require bold imagination in a rethinking about
• 33:53
  how the labor force comes together
• 33:56
  equally on college campuses
• 33:58
  and what we're teaching our kids.
• 34:00
  This stuff's gonna matter.
• 34:02
  And so if I worry about anything, going back to the,
• 34:05
  you know, where our markets and where is the economy,
• 34:08
  I worry a lot about this, not
• 34:11
  because I don't think the problem can get solved, I worry
• 34:15
  because we're not even having a debate yet.
• 34:17
  And I think that's wrong.
• 34:18
  And so we're gonna have to think long and hard about that.
• 34:22
  So we have some wood to chop in that regard.
• 34:26
  Look, AI is gonna change everything we do
• 34:32
  as individuals and humans.
• 34:34
  We have to stay ahead of these trends as business leaders.
• 34:38
  And we'll talk about this, I'm sure you have
• 34:41
  to start thinking about where
• 34:43
  and how you can use these tools.
• 34:46
  Again, I said this,
• 34:47
  but ours as a company founded on these principles,
• 34:50
  first on technology generally then on many machine learning,
• 34:55
  large language model applications.
• 34:59
  But I think it's obvious to the audience,
• 35:01
  if there's any company in Florida that's leveraging ai,
• 35:05
  it's a place like Citadel.
• 35:06
  And we definitely are having wins and gains as a result.
• 35:10
  - So, so I want, talk
• 35:11
  to me a little bit more about the AI labor market effects.
• 35:14
  I mean, is AI in your mind a positive
• 35:16
  or a negative for jobs sort of in society at large?
• 35:20
  And what about in, in, in finance?
• 35:22
  I mean we, you know, I think we've seen these sort
• 35:24
  of news reports from time to time that say, you know,
• 35:26
  that investment investment banks are cutting their analyst
• 35:29
  jobs by half because of ai.
• 35:31
  I mean, what, what would you tell young people today about
• 35:35
  how to maybe AI proof their
• 35:37
  and career prospects if they were thinking about entering a
• 35:40
  career in finance or another industry?
• 35:43
  - There's a lot there. Look, I think there'll be more
• 35:48
  of let's, let's stick to financial services.
• 35:51
  I compared Citadel Securities to the big banks
• 35:55
  at Citadel Securities.
• 35:57
  We have really no strategic plan to cut heads
• 36:03
  because we're using AI in a more profound way.
• 36:06
  But I suggested earlier we had already achieved a lot of
• 36:09
  that technology dividends.
• 36:11
  So for us, AI is all about getting more efficient,
• 36:16
  more productive, running bigger
• 36:19
  and more robust financial models.
• 36:22
  You know, the speed by which we can do certain things
• 36:25
  that really fuel and power our, our strategies
• 36:30
  and our, you know, our, our client facing franchise.
• 36:34
  If we used to re-underwrite the big risk models
• 36:38
  that power Citadel Securities four times a year,
• 36:41
  'cause that was about the amount of technology
• 36:43
  and computing power that could handle that.
• 36:47
  We're now capable of doing that 12 times a year
• 36:50
  and going from four to 12 leads
• 36:53
  to not only efficiency gains, more revenue
• 36:56
  and more profit falls to our bottom line as a result.
• 36:59
  So for the avoidance of doubt, AI has been very additive
• 37:05
  to our bottom line.
• 37:06
  But for us it's not at all a headcount issue.
• 37:10
  Now in the rest of financial services, it goes back to
• 37:14
  what I said earlier.
• 37:16
  I think there you'll see a more material
• 37:21
  reshuffling of what people do.
• 37:24
  There are many, many tasks at the big banks that Ken should
• 37:28
  and will get automated.
• 37:30
  I don't know if it'll be in the next 12 months
• 37:32
  or five years from now, but that will happen.
• 37:36
  I don't know if that means banks will have materially
• 37:40
  smaller headcounts.
• 37:42
  I think the jobs
• 37:43
  of the future will be more about people applying
• 37:49
  real thought reasoning, intuition
• 37:53
  and you know, coming up with big, bold ideas.
• 37:56
  And it goes back to the point I made about, you know,
• 37:59
  making sure colleges keep up with this, right?
• 38:03
  And so, you know, what's gonna equip you people against,
• 38:08
  you know, the potential job shrinkers
• 38:10
  that could come from ai.
• 38:13
  You know, I don't know if I have any great wisdom to impart,
• 38:17
  but I think educating well-rounded, thoughtful,
• 38:22
  articulate people is gonna be more important than
• 38:25
  ever before.
• 38:28
  And so I think it's gonna be things like that
• 38:29
  that people need to get focused on in a hurry.
• 38:33
  I do think these changes, as I said, are coming
• 38:36
  to a theater near you very, very soon.
• 38:40
  And if you run a small business, a big business,
• 38:44
  I think you have to be obsessed right now about
• 38:48
  what you're going to do with ai,
• 38:51
  what you're competitors are doing with it.
• 38:53
  And it should be a part of the leadership group of
• 38:57
  that company's time at Citadel Securities at Citadel,
• 39:02
  we don't have an AI department.
• 39:04
  In fact, I could be wrong,
• 39:06
  but I don't think anyone at our company has the
• 39:08
  title head of ai.
• 39:10
  The way we think about it is every one of us,
• 39:14
  everyone in the leadership group, every employee is tasked
• 39:18
  with thinking about what does he or she do on a daily basis?
• 39:23
  What are your operational workflows?
• 39:26
  Think about them, map them, break it down to the very,
• 39:30
  very granular level
• 39:33
  and then look at where you can disrupt yourself in
• 39:36
  that example by using ai.
• 39:40
  And that's how you start to get a productivity lift.
• 39:42
  That's how you start to incorporate ai.
• 39:45
  A tops down approach has been failing many large companies,
• 39:50
  if you think AI is off to the, you know,
• 39:52
  the side in a different department
• 39:54
  and you call them on some helpline on a one 800
• 39:56
  number, you're missing it.
• 39:58
  I think you're really, really missing it.
• 40:00
  This is definitively a bottoms up,
• 40:03
  granular analysis of operational workflows.
• 40:07
  And when you start to do that work, I think you start
• 40:10
  to actually almost immediately get some
• 40:12
  real productivity gains.
• 40:14
  - That's that's fantastic.
• 40:16
  And, and really, you know, we've got so many people here
• 40:20
  who I think are much like yourself coming from New York
• 40:25
  in finance or elsewhere.
• 40:27
  And so I think it's really a fantastic, you know,
• 40:30
  hearing I think from yourself in terms of
• 40:33
  how should people be leveraging AI in their businesses
• 40:36
  or, or day-to-day work.
• 40:37
  So I think one, it's really a, a, a real treat to,
• 40:40
  to have you here, Jim,
• 40:41
  and really wanna thank you for coming.
• 40:42
  This has been a real honor speaking with you
• 40:44
  and really wanna thank you for this fantastic conversation.
• 40:48
  Thank you. Thank you.