Book of Souls

Matt Levine argues that multi-strategy hedge funds like Citadel are better understood as liquidity provision businesses than as investment decision-making firms, filling a role that investment banks occupied roughly twenty years ago. Ken Griffin recognized this logic early, observing in college that market makers profit on all options trades rather than just some, and built Citadel around repeatable, fee-for-service liquidity provision rather than stock picking or large directional bets. Dispersion trades and index tarp trades are examples of services that migrated from banks to hedge funds as a result of this structural shift.

The New Yorker profile of Griffin noted that colleagues debate whether he lacks the normal need to blink, that he had no clear mentor partly because he started Citadel so early, and that the firm is described by one source as a highway wreck of human bodies due to high turnover. An employee kept a book of souls tracking friends who were fired. One Citadel partner described the firm as a business that can recreate great portfolios again and again because signals decay over time, requiring constant churn and new people to rebuild positions. After the financial crisis Griffin diversified into non-financial tangible assets including art, real estate, original constitutional documents, and at least one dinosaur fossil.

Bridgewater under Ray Dalio was the largest hedge fund in the world but carried a reputation for low to mid single digit returns alongside interpersonally unusual management practices including struggle sessions and confrontational self-examination that did not demonstrably improve investment returns. Running a large fund with mediocre returns was nonetheless viable because it generated predictable recurring management fee revenue. Nir Bardiya took over after Dalio retired and has been repositioning Bridgewater as a smaller, more focused, higher-performance fund. Two of Bridgewater's seven institutional owners sold their general partner stakes back to the firm at a discount to their purchase price, and the Teacher Retirement System of Texas is looking to sell its stake after already slashing its holding value by nine percent last year. All but four employees offered the chance to sell shares back to the company declined. Bridgewater's Pure Alpha fund had a strong 2025 after a middling decade of performance, but the AUM decline means institutional owners now receive variable performance fees on a smaller capital pool rather than steady management fees on a larger one.

Outside capital in a hedge fund management company creates incentives to gather assets and charge two percent fees rather than maximize returns. Bill Ackman structured his public management company so shareholders receive a preferred return on the first portion of incentive fees, giving them more stable earnings, while employees retain the upper-tail performance upside.

Reg NMS was created by the SEC approximately twenty years ago and links stock exchanges so trades must execute at the best available price across all venues. A consequence is that brokers and high-frequency traders must connect to every new exchange, which effectively subsidizes the creation of new ones, and there are now approximately fourteen stock exchanges operating under the national market system. The SEC's own Reg NMS proposal calls out the proliferation of exchanges as an inefficiency. Reg NMS became particularly controversial in the context of IEX's speed bump, which the SEC approved despite objections from market participants who questioned being forced to route to a venue that intentionally delays quotes. Removing the trade-through rule would make exchange experimentation voluntary rather than mandatory.

The primary motivation behind removing Reg NMS trade-through rules in the current policy environment is to enable listing existing stocks on crypto exchanges. Alex Thorne of Galaxy described removing the trade-through rule as one of the biggest unlocks yet for tokenized stocks. Crypto market structure is fundamentally incompatible with trade-through rules because of pre-funding requirements and block-time settlement of roughly one to six seconds per batch, which is described as a lifetime relative to equity market structure. The version of tokenization involving listing private stocks on crypto exchanges to go public without registering has been largely pushed back by regulators, but the market structure version involving existing stocks is actively happening and is being enabled by potential Reg NMS changes. In April, over 4.5 billion dollars traded on the Moon ATS overnight platform, illustrating the scale already present in this space.