Citadel Securities CEO Peng Zhao: The peak of Chinese on Wall Street, started his extraordinary life at the age of ten.

23-05-23 10:00
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Original Title: "He, the No.1 Chinese on Wall Street, Started Cheating at the Age of 10"
Original Source: Wall Street Journal

For Zhao Peng, the Chinese CEO of Citadel Securities, some describe him as a "genius" while others describe him as a "natural-born entrepreneur". Simply labeling him as a top student would be too narrow, as there are many top students out there. However, his legendary life journey of rising to the top amidst the turbulence of Wall Street is difficult to replicate.

Among the many myths on Wall Street, Zhao Peng's story is certainly not the most legendary, but it is definitely a significant one.

As Citadel, the hedge fund managed by "the new king of global hedge funds" Ken Griffin, continues to grow in size, its hedge fund Citadel LLC has topped the 2022 list of the most profitable hedge funds. Citadel Securities, the market maker, has also become the "king" of the industry. Zhao Peng, the leader behind Citadel Securities, is gradually becoming well-known to people.

From the resume, Zhao Peng is definitely a "study genius" in China: he entered the children's class at the age of 10 and was admitted to the Mathematics Department of Peking University at the age of 14. After obtaining a PhD from the University of California, Berkeley, he joined Citadel Securities and became the CEO in less than ten years.

As one of the few North American Chinese who earns a six-figure income, Zhao Peng is mysterious and low-key, with very little publicly available information. In addition to his jaw-dropping earnings, Zhao Peng's status and reputation in the industry are unmatched by other Chinese.

Some describe Zhao Peng as a "genius," while others describe him as a "natural-born entrepreneur." Simply seeing him as a top student may be too narrow, as there are many top students, but it is difficult to replicate the legendary life of someone who has risen to the top of Wall Street amidst the winds of change.

Life of cheating started at the age of 10

Zhao Peng's starting line is naturally ahead of ordinary people.

In 1983, Zhao Peng was born in Beijing and showed exceptional intelligence from a young age. At the age of 10, he entered the "Children's Class" at Beijing No.8 Middle School and completed all the knowledge from fifth grade of elementary school to high school in just four years. He then went on to study mathematics at Peking University, where he received various awards such as the Beijing University Innovation Award and the Berkeley Fellow Erich Lehmann Citation.

After graduating from Peking University, Zhao Peng went to the University of California, Berkeley to pursue a PhD in statistics. His main research areas include online prediction, prediction loss functions, natural statistics, financial data analysis, and financial forecasting.

After obtaining his PhD in 2006, Zhao Peng joined Citadel Securities as a senior quantitative researcher. With exceptional professional skills, Zhao Peng made his way up from analyst to partner, general manager, and finally became CEO in 2017, all in less than 10 years.

However, few people know the original intention of this long journey.

Zhao Peng has long anchored his goal. When he was 12 years old, he read an article on the subway that described how physicists, mathematicians, and computer scientists developed systems to beat Wall Street professionals in predicting market trends. Zhao Peng was fascinated by this high-risk and potentially huge return, and he thought at the time that since he was also good at these fields, he could one day become an investment manager or trader.

Zhao Peng later mentioned that it was that newspaper article that planted the seed of interest in finance in his heart. Since then, every step he has taken has been exploring whether he is truly interested in the field of finance. This process has also created today's "Chinese No.1" on Wall Street.

Leading Citadel Securities to Fame

After obtaining his PhD, Zhao Peng faced a career path decision - should he continue to pursue an academic career or step into the professional world? In his confusion, Zhao Peng chose to intern at Lehman Brothers, where he was mainly responsible for quantitative research. At that time, he was only 23 years old.

Through this experience, Zhao Peng discovered his true talent and how his expertise could have a real impact on the financial industry. After careful consideration, he chose Citadel Securities, a company he had previously worked with.

Although at that time, investment banks were the hotcakes in most people's eyes, hedge funds were not a popular option. Citadel was only a small part of its current size, but Zhao Peng valued the professionalism and quality of his colleagues. He mentioned that everyone he met at Citadel Securities left a deep impression on him, and they all had outstanding abilities and amazing work motivation.

It has been proven that Zhao Peng made one of the wisest decisions in his life. Since then, he has led Citadel into a phase of rapid business growth and global expansion.

As of 2021, during his four years as CEO, Zhao Peng led the company to increase its net revenue from transactions by more than five times, soaring from $1.2 billion in 2016 to $6.7 billion in 2020. This has earned him industry recognition, and in 2019, Zhao Peng was selected for Fortune magazine's annual list of the most influential young people in the business world, being named one of the "40 Under 40" elites.

Citadel's business is mainly divided into two segments, one is the hedge fund Citadel LLC that provides asset management services, and the other is Citadel Securities that provides market-making services. Despite being heavily impacted by the 2008 financial crisis, Citadel's founder, Griffin, withstood the pressure and not only brought the company back from the brink of collapse but also expanded it further.

Since 1990, Citadel has developed into one of the world's largest hedge fund companies, known as the "Amazon of the trading world", second only to Bridgewater. Former Federal Reserve Chairman Bernanke also joined the company. Citadel's position has given its founder full confidence, and Griffin once said, "We don't produce cars, but we do produce money."

Citadel Securities has gradually grown into one of the largest options trading firms and broker-dealers in the United States. In January of last year, it completed its first financing in 20 years - a minority equity investment of $1.15 billion from Sequoia Capital and Paradigm, valuing the company at $22 billion, or approximately RMB 140 billion. Alfred Lin, a partner at Sequoia Capital, will join the board of directors.

From now on, Citadel Securities has become the first super unicorn of 2022. This is also the first time the company has accepted external investment, which means it is one step closer to its future listing plan.

And Zhao Peng, the leader behind this super unicorn and the only Chinese face in the leadership team, is gradually becoming well-known. Zhao Peng said: "We see huge opportunities to meet the needs of more markets and more product customers. Our cooperation with Sequoia and Paradigm puts us in a more advantageous position."

As of last year, Citadel Securities provided market-making services for over 4,000 US listed options companies, accounting for 99% of the total options trading volume in the US, making it the undisputed "king" in the industry; currently, 36% of US listed retail trades are executed through Citadel Securities' platform.

In 2022, Citadel Securities achieved a revenue of $7.5 billion, far exceeding the previous record of $7 billion set in 2021; the net revenue in 2020 was $6.7 billion, which is twice that of 2018.

Leadership can shine

Citadel Securities has achieved such success, which of course cannot be separated from its "genius CEO", Zhao Peng, who has fully demonstrated his leadership talents. Just one year after joining the company, he began to work side by side with Griffin.

At that time, the potential crisis in the US mortgage market gradually emerged, and Griffin began to look for someone who could help him. A colleague recommended Zhao Peng. After several hours of tireless conversation, Griffin quickly found a temporary seat in Zhao Peng's office. Later, as the company survived the 2008 financial crisis and the business developed, Zhao Peng's career began to take off.

Insiders revealed that after the 2009 financial crisis, Zhao Peng took over the mess of the Citadel HFT high-frequency trading team from the previous leader and managed to revive it in just two years.

The first step for Citadel to expand its business is the options trading business of the market-making department. The initial method was simple: as more and more quantitative investors flooded the market through algorithmic trading, the company intervened and acted as the other party of the trade, providing liquidity.

Although the business was a great success, Zhao Peng believed that it was far from over. In 2014, after Citadel's co-heads of equities, David Smith and Jim Knight, resigned, Zhao Peng was entrusted with the task of redesigning the department's order processing methods. He modeled the evolution of stock trading, relying more on predictive analysis than human intervention. This led to a further surge in the company's business volume.

Chief Operating Officer Matt Culek, who joined Citadel in 2012, commented:

You need to gain the trust of senior leaders and Griffin in order to develop your business. Zhao Peng has successfully handled the matter.

Zhao Peng prioritized recruitment when building his company team. He believed that the most outstanding talents were most likely to make money, so he started with his old classmate Fang Wu. At first, Wu politely refused, saying that he knew little about finance and only understood physics.

However, Zhao Peng did not give up. He continued to call Wu and sent some small questions such as brain teasers, which aroused Wu's interest. Wu couldn't resist and finally agreed to go to Citadel's headquarters in Chicago at that time, but still did not fully agree to Zhao Peng's request.

He was quickly "slapped in the face" - Wu became a full-time employee of Citadel. When talking about this, he joked and said: "(Zhao Peng) is not a bad person. His intentions are good. He just does whatever he wants."

Becoming a CEO is not the goal

During the 2008 financial crisis, Citadel was able to revive itself with one of its strengths, its hedge funds. While focusing on the fundamental value of investments, Citadel analyzed the market through a large amount of information and various mathematical models to find opportunities. This is exactly where Zhao Peng can leverage his strengths.

When pursuing his doctoral degree at Berkeley, Zhao Peng discovered a trick for problem-solving - breaking down seemingly subjective or chaotic things into fragments that can be mapped and understood. He is approaching the market in the same way.

He said that when establishing new business lines at Citadel Securities, the first step is always to figure out how to use mathematics, modeling, and machine learning to immediately find the correct price for an asset. Once this problem is solved, the company will design a buying and selling method that can be scaled up and close to that price.

His former colleagues said that from the details of solving problems to gradually managing the business, all of them reflect the innate endowment of this CEO. Although he realized his leadership talent very late.

In mid-2016, Griffin aggressively recruited former Microsoft COO Kevin Turner to lead Citadel Securities. Zhao Peng, who could only retreat to the position of chief scientist at this time, said he was not worried about being eliminated:

Actually, becoming a CEO was never part of my original plan. If my career goal was to become the CEO of a financial company, I wouldn't have chosen a major in mathematics during my undergraduate studies.

However, Turner's relationship with Griffin was not as harmonious as imagined, and as a newcomer, he was not accustomed to the company's environment. Turner only persisted for a few months before resigning, and Zhao Peng returned to the position of CEO.

Citadel Securities' derivatives director Roy Kaiser praised Zhao Peng, saying: "He is the driving force behind innovation, responsible for research agendas and revenue. With him, you can think of everything about the CEO."

Perseverance, Intelligence, Low-key, Pragmatism

Looking back on Zhao Peng's life experience, we can find several outstanding traits of this CEO who is known as a "genius CEO".

First of all, it's about perseverance. This brings us to the story of how Zhao Peng entered Peking University. In the second grade of the children's class, as the best student in the class, he qualified to participate in the National Mathematical Olympiad. Unfortunately, the ticket to participate was quickly lost by him.

Later, Zhao Peng and his father searched through the nearby landfill bit by bit for nearly a day and night before finally finding that ticket. He successfully participated in the competition, opening the first chapter of his legendary life story.

This math competition is the "fast track" that allowed Zhao Peng to enter Peking University at the age of 14. Candidates can participate in a program that allows 10-year-old children to complete a high school degree within 4 years. As the first step of the program, Zhao Peng needs to undergo an evaluation in a two-week training camp.

In a critical test, the organizers of the training camp brought the children to a track and gave them a simple task - to move forward, leaving the observers to guess how to make a lasting impression. In the end, Zhao Peng persisted for two hours and passed the evaluation due to his outstanding perseverance.

Being able to become the CEO of Wall Street at such a fast pace, his intelligence is almost the "not worth mentioning" advantage. Fang Wu, a Peking University classmate four years older than Zhao Peng, said: "He was very famous on campus, not only because of his age, but also because of his intelligence."

Wu recalled that their group would spend several weeks studying exercises, but Zhao Peng could complete them in just a few days and spend the rest of his time playing video games.

Among the many CEOs on Wall Street, Zhao Peng has always maintained an unusually low profile. Compared to Griffin, who has always been in the spotlight, Zhao Peng rarely attracts the attention of others. Jamil Nazarali, former executive at Citadel Securities and current CEO of EDX Markets, said:

The only thing he didn't do well enough is that his public visibility is not high enough.

Although Griffin often speaks publicly, Bloomberg cited sources as saying that Griffin rarely visits Citadel Securities and instead monitors it remotely. In the company's various expansion efforts, it is Zhao Peng who is busy day and night. He promoted his company in an interview, saying, "If you want to trade, we should be the first name you think of."

From his attitude of "treating the CEO title as dirt", it can be seen that Zhaopeng is a very pragmatic and technology-focused person. He has mentioned that learning is very important, and his academic background and work experience are essentially technical. Although he does not have an MBA degree, Zhaopeng has been constantly absorbing the experience of predecessors by reading articles on company and talent management.

Overview of the entire trading market

Currently, Citadel Securities is preparing to join the selected list of primary dealers of the Federal Reserve, which directly trades with the New York Fed when implementing monetary policy and promises to participate in every US Treasury auction. The institution's growing influence is attracting attention.

Moody's Investor Service analyst Fadi Abdel Massih once said that there is a common misconception outside the financial industry that market makers are relatively safe and even boring, like power companies maintaining power supply. However, the fact is that market maker trading is a "highly complex process that can cause huge losses".

Massih added: "When the founder's capital is at risk, the interests of both parties are closely linked. With the increase of business lines, the institution's revenue will become diversified, so it can better withstand any occasional losses in any part of the business."

As the CEO, Zhao Peng is known for his obsession with metrics. He helped establish an internal management portal for Citadel Securities that tracks employee and business unit performance in real time, calculates revenue, and displays the company's relative performance compared to peers. Managers review performance every month and decide how to expand or cut back on business.

Regarding the future of Citadel Securities, Zhao Peng stated that the organization will bring cutting-edge technology, including analysis, engineering, software, and hardware, into the financial field. "We are fundamentally changing and driving the way the future financial markets operate."

A netizen revealed on social media that Zhao Peng mentioned in a chat that his goal is no longer to make money, but to devote himself to changing the traditional trading pattern of the entire bond market.

He believes that as a person born in the 1980s, he should shoulder the responsibility of promoting social development. In this sense, Zhao Peng has set a good example for people to transition from academia to commercial applications.

In addition, Citadel is also the first foreign hedge fund to complete RMB financing and is very welcoming to Chinese students studying abroad. Netizens revealed that this is because the entire team is quite convinced of Zhao Peng's influence. Because of his influence, Citadel's HR is also very willing to recruit Chinese students studying abroad.

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