For Zhao Peng, the Chinese CEO of Citadel Securities, some describe him as a “genius” and others as a “natural entrepreneur”. If you simply see him as a top student, it is inevitably a little narrow-minded, because there are endless school bully, and it is difficult to reproduce the legendary life of riding the wind all the way through the ups and downs of Wall Street.
Among the many myths of Wall Street, Zhao Peng’s story is certainly not the most legendary, but it is definitely a strong stroke.
As Ken Griffin’s Citadel grows larger, its hedge fund Citadel LLC tops the list of the most profitable hedge funds in 2022, and market maker Citadel Securities has also become the “king” of the industry. Zhao Peng, the man behind Citadel Securities, is also becoming well-known.
Judging from his resume, Zhao Peng is definitely an out-and-out “scholar” in China: he entered the children’s class at the age of 10, was admitted to the Department of Mathematics of Peking University at the age of 14, and joined Citadel Securities after graduating with a doctorate from the University of California, Berkeley, and sat in the position of CEO in less than ten years.
As one of the few North American Chinese with an annual income of 9 figures, Zhao Peng is mysterious and low-key, and there is very little information that can be retrieved publicly. In addition to being staggering in terms of income, Zhao Peng’s status and prestige in the circle are also difficult to compare with other Chinese.
Some describe Zhao Peng as a “genius”, while others describe him as a “natural entrepreneur”. If you simply see him as a top student, it is inevitably a little narrow-minded, because there are endless school bully, and it is difficult to reproduce the legendary life of riding the wind all the way through the ups and downs of Wall Street.
Kaihang’s life begins at the age of 10
Zhao Peng’s starting line is inherently ahead of ordinary people.
Born in Beijing in 1983, Zhao Peng has shown extraordinary intelligence since he was a child: at the age of 10, he entered the “children’s class” of Beijing No. 8 Middle School, completed all the knowledge from the fifth grade of primary school to high school in four years, and was admitted to the Department of Mathematics of Peking University with excellent results, and won various awards such as the Peking University Innovation Award and the Berkeley Fellow Erich Lehmann Citation during his time in school.
After graduating from Peking University, Peng Zhao went to the University of California, Berkeley to study for a Ph.D. in statistics, focusing on online forecasting, predicting loss functions, natural statistics, financial data analysis, and financial forecasting.
After graduating with his Ph.D. in 2006, Peng Zhao joined Citadel Securities as a Senior Quantitative Researcher. With his outstanding professional level, Zhao Peng has overcome obstacles all the way, from analyst to partner, general manager, and finally became CEO in 2017, which took less than 10 years.
But the original purpose of this long journey is little known.
Zhao Peng anchored his goal very early. When he was 12 years old, he read an article on the subway describing how physicists, mathematicians, and computer scientists developed systems that beat Wall Street professionals at predicting market movements. Zhao Peng was fascinated by the high risk and the potential for huge returns, and he thought that since he was good at these areas, he could one day become an investment manager or trader.
Zhao Peng later said that it was that newspaper article that planted the seeds of interest in finance in his heart. Since then, he has explored every step he has taken to see if he is truly interested in the financial sector. This process has also created today’s “No. 1 Chinese” on Wall Street.
led Citadel Securities to prominence
After graduating with a Ph.D., Zhao Peng was faced with the choice of a career path: whether to continue to deepen his academic path, or to make great strides into the workplace? At the time, he was only 23 years old.
Through this experience, Zhao Peng discovered his true talent and the real impact his expertise could have on the financial industry. After careful consideration, Zhao Peng chose Citadel Securities, which he had been in contact with.
Although at the time, investment banks were the sweetheart of most people’s eyes, hedge funds were not a popular option, and Citadel was only a fraction of the size of Citadel, Zhao Peng valued the professionalism and quality of his colleagues. He mentions that he was impressed by everyone he met at Citadel Securities, who were extremely capable and motivated.
As it turned out, Zhao Peng made one of the wisest choices in his life. Since then, he has led Citadel into a phase of rapid growth and global expansion.
In 2021, during his four-year tenure as CEO, Zhao led the company to a five-fold increase in net revenue from transactions, from $1.2 billion in 2016 to $6.7 billion in 2020. This has led to him being recognized by the industry, and in 2019, Zhao Peng was named one of the “40 Under 40” by Fortune magazine’s annual list of the most influential young people in business.
Citadel’s business is divided into two main segments, Citadel LLC, a hedge fund that provides asset management business, and Citadel Securities, which provides market maker business. When Citadel was hit hard by the 2008 financial crisis, founder Griffin resisted the pressure and not only pulled the company back from the brink of death, but it grew bigger.
Since 1990, Citadel has grown to become one of the world’s largest hedge fund firms, known as the “Amazon of the trading world,” second only to Bridgewater. Ben Bernanke, the former chairman of the Federal Reserve, joined the company. Citadel’s status also emboldened its founder, with Griffin once boasting, “We don’t make cars, but we do make money.” 」
Citadel Securities has grown to become one of the largest options trading institutions and broker-dealers in the United States. In January last year, it closed its first funding round in its 20-year history — a $1.15 billion minority investment by Sequoia Capital and Paradigm at a valuation of $22 billion, or about 140 billion yuan. Alfred Lin, Partner at Sequoia Capital, will join the Board of Directors.
Since then, Citadel Securities has become the first super unicorn of 2022. This is also the first time the company has received external investment, which means it is one step closer to its future IPO plans.
And Zhao Peng, the head behind this super unicorn and the only Chinese face in the leadership, is gradually becoming well-known. “We see a tremendous opportunity to meet the needs of our customers in more markets and with more products, and our partnership with Sequoia and Paradigm puts us in a better position,” said Zhao. 」
As of last year, Citadel Securities was the undisputed leader in the industry for more than 4,000 U.S.-listed options firms, accounting for 99% of all U.S. options transactions, and 36% of U.S.-listed retail transactions are now executed through Citadel Securities’ platform.
In 2022, Citadel Securities generated $7.5 billion in revenue, far exceeding the previous record of $7.0 billion set in 2021, and net revenue of $6.7 billion in 2020, double that of 2018.
Leadership skills are on the rise
Citadel Securities’ success is of course inseparable from this “genius CEO”, and Zhao Peng can be said to have brought his leadership skills into full play. A year after joining the company, he began to fight alongside Griffin.
At that time, the potential crisis in the U.S. mortgage market began to emerge, and Griffin began to look for someone who could help him. A colleague recommended Zhao Peng. After hours of tireless conversation, Griffin soon had a makeshift seat in Zhao Peng’s office. Later, as the company survived the financial crisis in 2008, the business grew, and Zhao’s career began to take off.
After the 2009 financial crisis, Zhao Peng took over the mess of Citadel’s HFT high-frequency trading team from the previous principal, and it took just two years to make it re-emerge, according to people familiar with the matter.
Citadel’s first step in expanding its business was the options business in the market-making department. The initial approach was simple: as more and more quantitative investors poured into the market through algorithmic trading, the company stepped in and acted as the other side of the trade, i.e., providing liquidity.
While the business has been a success, Zhao believes there is much more to it than that. Following the departure of Citadel co-directors David Smith and Jim Knight in 2014, Peng Zhao was tasked with redesigning the way the department handled orders, mimicking the evolution of stock trading, which relied more on predictive analytics than human intervention. As a result, the company’s business volume continues to surge.
Matt Culek, Chief Operating Officer, who joined Citadel in 2012, commented:
You need to gain the trust of senior leadership and Griffin so that you can grow your business. Zhao Peng got things done.
Zhao Peng made recruitment a priority in the process of building the company’s team. He believes that the best talent is most likely to make money, so he started with his old classmate Fang Wu. At first, Wu politely refused, saying that he knew very little about finance, only physics.
However, Zhao Peng didn’t give up, he continued to call Wu and sent some small questions such as brain teasers, which piqued Wu’s interest. Wu was overwhelmed and finally agreed to go to Chicago, Citadel’s headquarters at the time, but still did not fully agree to Zhao’s request.
He was soon “slapped in the face” – Wu became a full-time employee at Citadel. When he talked about it, he laughed and joked, "(Zhao Peng) He’s not a bad person. His intentions were good. He just does whatever he wants. 」
Becoming a CEO is not the goal
In the midst of the 2008 financial crisis, Citadel came back to life with one of its strengths, strategy funding, which focused on the fundamentals of investment value, analyzed the market through a wealth of information and a variety of mathematical models to find opportunities. And this is where Zhao Peng can play to his strengths.
While studying for his Ph.D. at Berkeley, Zhao Peng figured out a knack for dealing with problems — breaking down what seemed subjective or chaotic into pieces that could be mapped and understood. He is looking at the market in the same way.
Building a new line of business at Citadel Securities always starts with figuring out how to use mathematics, modeling, and machine learning to instantly find the right price for an asset, he said. Once this problem is solved, the company will devise a buying and selling method that can be scaled up and close to that price.
From the details of solving the problem to the gradual start of managing the business, his longtime colleagues say, the CEO’s innate endowment is exemplified. Although he realized his leadership qualities very late.
In mid-2016, Griffin hired Kevin Turner, the former chief operating officer of Microsoft, to take the helm of Citadel Securities with great fanfare. Zhao Peng, who can only retire as chief scientist at this time, said that he is not bothered by being eliminated:
Becoming 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 to major in mathematics as an undergraduate.
But Turner didn’t get along as well with Griffin as he had hoped, and as a newcomer, he wasn’t used to the company’s environment. Turner only lasted a few months before leaving, and Zhao Peng returned to the position of CEO.
Roy Kaiser, Head of Derivatives at Citadel Securities, commented on Peng Zhao, saying, "He is the driving force behind the innovation, responsible for the research agenda and revenue. In him, you can associate everything about the CEO. 」
Persistent, smart, low-key, pragmatic
Looking back on Zhao Peng’s life experience, we can find several outstanding traits of this “genius CEO”.
The first is persistence. This is to mention 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 for the National Mathematics Olympiad. Unfortunately, he quickly lost his ticket to the competition.
Later, Zhao Peng and his father rummaged through the nearby garbage dump for nearly a day and a night before finally finding the ticket. He successfully participated in the competition, opening the first chapter of his legendary life story.
The math competition is a “fast track” for Zhao Peng to enter Peking University at the age of 14, and his candidates can participate in a program that allows 10-year-olds to complete their high school degree in four years. As part of the project, Zhao Peng was evaluated during a two-week training camp.
In a crucial test, the camp organizers took the children to a running track and gave them a simple task - to move forward, and they could only guess how to impress the observers. In the end, Zhao Peng persevered in completing the two-hour journey and passed the evaluation because of his extraordinary perseverance.
To be able to become the CEO of Wall Street at such a rapid pace, his intelligence is almost the most “worthless” advantage. Fang Wu, a Peking University classmate who is four years older than Zhao Peng, said: "He is famous on campus, not only because of his age, but also because of his intelligence. 」
Wu recalls that at the time, their group would spend weeks working on the exercises, but Zhao Peng was able to complete them in just a few days, and spent the rest of the time playing video games.
Among Wall Street’s many CEOs, Zhao Peng has also maintained an unusually low profile. Compared with Griffin, who has been in the spotlight, Zhao Peng rarely attracts the attention of others. Jamil Nazarali, a former executive at Citadel Securities and now CEO of EDX Markets, said:
The only thing he didn’t do enough was that he wasn’t public known enough.
While Griffin often speaks in public, Bloomberg, citing people familiar with the matter, revealed that Griffin actually rarely visits Citadel Securities, instead taking a remote monitoring approach. In the company’s various efforts to expand its business, it is Zhao Peng who is busy before and after. In an interview, he promoted his company, saying, "If you want to make a deal, we should be the first name that comes to mind. 」
From his attitude of “treating the CEO title as dung”, it can be seen that Zhao Peng is a very pragmatic and technology-focused person. He has mentioned that learning is very important, and that his academic background and work experience are very technical in nature. Although he does not have an MBA degree, Zhao Peng has been learning from the experience of his predecessors by reading articles on companies and talent management.
Look at the entire trading market landscape
Currently, Citadel Securities is preparing to join the Federal Reserve’s select list of primary dealers that trade directly with the New York Fed as it implements monetary policy and commit to participating in every U.S. Treasury auction. The agency’s growing influence is drawing attention.
Fadi Abdel Massih, an analyst at Moody’s Investors Service, has said that there is a common misconception outside the financial industry that market makers are relatively safe or even boring, just like utilities maintain power. But in fact, trading for market makers is a “highly complex process with the potential to cause huge losses”.
Massih added, "When a founder’s capital is put at risk, the interests of both parties are closely aligned. As the line of business increases, the agency’s earnings will become diversified, so it can better withstand the occasional loss of any part of the business. 」
As CEO, Zhao Peng is known for his obsession with metrics. He helped build Citadel Securities’ internal management portal to track the performance of employees and business units in real time, count revenue and show the company’s performance relative to its peers. Managers review performance each month to decide how to expand or downsize.
As for the future of Citadel Securities, Zhao Peng said that by bringing cutting-edge technologies, including analytics, engineering, software and hardware, to the financial sector, “we are fundamentally changing and driving the way financial markets work in the future.”
Some netizens revealed on social media platforms that Zhao Peng mentioned in a chat that his goal is no longer to make money, but to change the pattern of traditional trading in the entire bond market.
He believes that as a post-80s generation, we should take on the responsibility of promoting social development. In this sense, Zhao Peng has set a good example for people to transition from academia to business applications.
In addition, Citadel is also the first foreign hedge fund to complete RMB financing, and it is also very welcoming to Chinese students. Netizens revealed that this was because the entire team was quite convinced of Zhao Peng. Because of his influence, Citadel’s HR is also very willing to recruit Chinese students.
