Written by: Han Xuyang

Among the many myths of Wall Street, Zhao Peng’s story is certainly not the most legendary one, but it is definitely a highlight.

As Citadel, the "new king of global hedge funds" Ken Griffin, grows bigger and bigger, its hedge fund Citadel LLC topped the list of the most profitable hedge funds in 2022, and market maker Citadel Securities also became the "king" of the industry. Zhao Peng, the head of Citadel Securities, has gradually become well-known.

Judging from his resume, Zhao Peng is definitely an absolute "academic master" in China: he entered the children's class at the age of 10, and was admitted to the Department of Mathematics at Peking University at the age of 14; after graduating with a doctorate from the University of California, Berkeley, he joined Citadel Securities and became the CEO in less than ten years.

As one of the few Chinese in North America with an annual income of nine figures, Zhao Peng is mysterious and low-key, and there is very little information publicly available about him. In addition to his staggering income, Zhao Peng's status and reputation in the circle are also difficult to match by other Chinese.

Some people describe Zhao Peng as a "genius", while others describe him as a "natural entrepreneur". It would be a bit narrow-minded to simply regard him as a top student, because top students emerge in endlessly, but it is difficult to replicate the legendary life of riding the wind and clouds on Wall Street.

The life of cheating started at the age of 10

Zhao Peng's starting point was naturally ahead of ordinary people.

Zhao Peng was born in Beijing in 1983. He showed extraordinary intelligence at an early age. At the age of 10, he entered the "Children's Class" of Beijing No. 8 Middle School. In 4 years, he completed all the knowledge from the fifth grade of elementary school to high school. He was admitted to the Department of Mathematics of Peking University with excellent results. During his time at school, he won various awards including the Peking 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 doctorate in statistics, mainly researching online prediction, prediction loss function, natural statistics, financial data analysis and financial forecasting.

After graduating with a Ph.D. in 2006, Zhao Peng joined Citadel Securities as a senior quantitative researcher. With his outstanding professional level, Zhao Peng overcame all difficulties and rose from analyst to partner, general manager, and finally became CEO in 2017, which took less than 10 years.

But few people know the original intention of this long journey.

Zhao Peng anchored his goal early. 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 the high risk and potential huge rewards. He thought at the time that since he was good at these fields, he could become an investment manager or trader one day.

Zhao Peng later said that it was that newspaper article that planted the seed of his interest in finance. From then on, every step he took was to explore whether he was really interested in the financial field. This process also made him the "No. 1 Chinese" on Wall Street today.

Leading Citadel Securities to fame

After graduating with a doctorate, Zhao Peng was faced with a choice of career path: should he continue to pursue academic career or take a big step into the workplace? Confused, Zhao Peng chose to do a summer internship at Lehman Brothers, mainly responsible for quantitative research. 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 involved with before.

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

Zhao Peng made one of the wisest choices in his life. Since then, he has led Citadel into a period of rapid business growth and global expansion.

As of 2021, in the four years since he took office as CEO, Zhao Peng has led the company to increase its net transaction revenue fivefold, from US$1.2 billion in 2016 to US$6.7 billion in 2020. This has earned him industry recognition, and in 2019, Zhao Peng was selected as one of the "40 Elites Under 40" in Fortune magazine's annual list of the most influential young people in the business world.

Citadel's business is mainly divided into two major sectors, one is the hedge fund Citadel LLC that provides asset management services, and the other is Citadel Securities that provides market making services. When Citadel was hit hard by the 2008 financial crisis, founder Griffin withstood the pressure and not only pulled the company back from the brink of death, but also made it bigger and bigger.

Since 1990, Citadel has grown into one of the world's largest hedge fund companies, known as the "Amazon of trading", second only to Bridgewater. Former Federal Reserve Chairman Ben Bernanke joined the company. Citadel's status also gave its founder full confidence. Griffin once boasted: "We don't make cars, but we do make money."

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

Since then, Citadel Securities has become the first super unicorn in 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.

Zhao Peng, the head of this super unicorn and the only Chinese face in the leadership, has gradually become 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 to more than 4,000 U.S.-listed options companies, accounting for 99% of the total U.S. options trading volume, making it the undisputed "king" in the industry; currently, 36% of U.S.-listed retail transactions are executed through Citadel Securities' platform.

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

Leadership skills emerge

Citadel Securities’ success is of course inseparable from this “genius CEO”. Zhao Peng can be said to have fully utilized his leadership skills. One year after joining the company, he began to fight side by side with Griffin.

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

People familiar with the matter revealed that after the financial crisis in 2009, Zhao Peng took over the mess of Citadel HFT high-frequency trading team from the previous head and made it rise again in just two years.

Citadel’s first step in expanding its business was the options business of its 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 party to the transaction, that is, providing liquidity.

Although the business was a huge success, Zhao thought it was more than enough. In 2014, after Citadel co-heads David Smith and Jim Knight left, Zhao was entrusted with the task and redesigned the way the division processed orders, mimicking the evolution of stock trading, which relied more on predictive analysis and less on human intervention. This allowed the company's business volume to continue to surge.

Matt Culek, COO who joined Citadel in 2012, commented:

You need to gain the trust of senior leaders and Griffin to develop the business. Zhao Peng got it done.

Zhao Peng made recruiting a priority in building his company's team. He believed that the best talents were most likely to make money, so he started with his old classmate Fang Wu. At first, Wu politely declined, saying that he knew little about finance and only knew physics.

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

He was soon "slapped in the face" - Wu became a full-time employee of Citadel. When talking about this, he laughed and joked: "(Zhao Peng) He 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 made a comeback with one of its strengths, strategic funds - while focusing on the fundamentals of investment value, it uses a large amount of information and various mathematical models to analyze the market and find opportunities. This is where Zhao Peng can play to his strengths.

While working on his Ph.D. at Berkeley, Zhao developed a knack for approaching problems — breaking something that seemed subjective or messy into pieces that could be mapped and understood. He’s looking at markets the same way.

He said building a new business line at Citadel Securities always starts with figuring out how to use math, modeling and machine learning to instantly find the right price for an asset. Once that’s figured out, the firm then designs a way to buy and sell close to that price that can scale.

His old colleagues said that from solving these problem details to gradually starting to manage the business, everything reflects the CEO's innate talent, although he realized his leadership ability very late.

In mid-2016, Griffin recruited Kevin Turner, the former COO of Microsoft, to run Citadel Securities with great fanfare. Zhao Peng, who could only retreat to the position of chief scientist at this time, said that he was not bothered by being eliminated:

Actually, becoming a CEO was never part of my original plan. If my career goal had been to become the CEO of a financial company, I would not have chosen mathematics as my undergraduate major.

But Turner’s relationship with Griffin was not as harmonious as expected, and as a newcomer, he was not 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, said of Zhao: "He is the driving force behind innovation, responsible for the research agenda and revenue. He is everything you would expect from a CEO."

Persistent, smart, low-key and pragmatic

Looking back on Zhao Peng’s life experience, we can discover several outstanding qualities of this man who is known as the “genius CEO”.

The first is persistence. 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 for the National Mathematical Olympiad. Unfortunately, he soon lost his ticket to the competition.

Later, Zhao Peng and his father searched the nearby garbage dump bit by bit for nearly a day and a night before they finally found the ticket. He successfully participated in the competition and opened the first chapter of his legendary life story.

The math competition was Zhao Peng's "fast track" to Peking University at age 14, and candidates can participate in a program that allows 10-year-olds to complete a high school degree in four years. As the first step of the program, Zhao Peng needs to be evaluated in a two-week training camp.

In a key test, camp organizers took the kids to a running track and gave them a simple task: move forward. They could only guess how to impress observers. In the end, Zhao Peng completed the two-hour journey and passed the evaluation for his extraordinary perseverance.

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

Wu recalled that their group would spend weeks working on the exercises, but Zhao would finish them in just a few days, spending the rest of the time playing video games.

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

The only thing he didn't do well enough was his public visibility.

Although Griffin often speaks in public, Bloomberg cited people familiar with the matter as saying that Griffin rarely visits Citadel Securities and instead monitors remotely. In the company's various efforts to expand its business, it is Zhao Peng who is busy. In an interview, he promoted his company, saying: "If you want to do a deal, we should be the first name you think of."

From his attitude of "regarding the title of CEO as dirt", it can be seen that Zhao Peng is a very pragmatic and technology-focused person. He once mentioned that learning is very important, and his academic background and work experience are very technical in nature. Although he does not have an MBA, Zhao Peng has been constantly learning from the experience of his predecessors by reading articles on companies and talent management.

Looking at the entire trading market

Now Citadel Securities is preparing to join the Federal Reserve’s select list of primary dealers who deal directly with the New York Fed as it implements monetary policy and have pledged to participate in every Treasury auction. The firm’s growing influence is drawing attention.

Fadi Abdel Massih, an analyst at Moody's Investors Service, once said that there is a common misconception outside the financial industry that market makers are relatively safe or even boring, just like power companies maintaining power supply. But in fact, market makers' trading is a "highly complex process with the potential for huge losses."

Massih added: “When the founders’ capital is at risk, the interests of both parties are closely aligned. As the lines of business are added, the institution’s earnings become diversified, so it can better withstand occasional losses in any part of the business.”

As CEO, Zhao is known for his obsession with metrics. He helped build an internal management portal at Citadel Securities that tracks employee and business unit performance in real time, tallies revenue and shows how the company is doing relative to its peers. Managers review performance every month and decide how to expand or cut businesses.

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

Some netizens revealed on the social media platform that Zhao Peng mentioned in a chat that his goal now is no longer to make money, but to change the traditional trading pattern of the entire bond market.

He believes that as a post-80s generation, he should shoulder the responsibility of promoting social development. In this sense, Zhao Peng has set a good example for people to transform from academic to commercial application.

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

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