Citadel Signals Interest in Prediction Markets, Excluding Sports Contracts

• Global hedge fund says it’s monitoring evolution of prediction markets
• If it joins the party, it will avoid sports event contracts
• Citadel sees “real reasons” for institutional traders to use prediction markets

One of the largest hedge funds in the world, Ken Griffin’s Citadel Securities, has expressed interest in prediction markets and could dabble in the industry in the future, though it would not take part in sports event contracts, Citadel President Jim Esposito has revealed.

“Event contracts are interesting to us,” Esposito commented while speaking at the Semafor World Economy conference in Washington, DC, while also characterizing Kalshi co-founder Tarek Mansour as a “good friend.”

I think there’s a sound industrial logic, real reasons institutional clients would want to use these contracts to hedge various risks,” said Esposito, referencing geopolitical risks as an example.

“Will this market ramp and scale? I think it’s likely,” he added. “And as it does, will we continue to look at it and potentially get involved? Certainly possible.”

Institutional market participants, including hedge funds, are seen as ideal clients for prediction market operators and the industry is working to cater to professional investors in an effort to broaden its use cases and reduce dependence on smaller recreational traders.

Hedge Funds Could Propel Prediction Markets Growth

Recent reports confirm the prediction markets industry is poised for exponential growth. A Bernstein report out earlier this week says volume on yes/no exchanges could ascend to $1 trillion by 2030 while Bank of America estimates that figure will eventually rise to $1.1 trillion.

Democrats are likely to gain control of at least one chamber of Congress and that would be a “seismic event,” Esposito said at Semafor, and one that presents unique risks to professional money managers. The ability to hedge those risks presents a solid use for prediction markets, according to the Citadel executive.

Citadel, which had $65 billion in assets under management at the end of last year, is the largest market-making partner for Robinhood (NASDAQ: HOOD), potentially providing it with unique insight into retail traders’ event contract habits.

Esposito noted that increased retail interest in the space could be a catalyst for Citadel getting involved.

Citadel Will Pass on Sports Event Contracts

Bernstein estimates that sports event contracts currently account for 60% of prediction markets turnover. Some estimates put that percentage at north of 80%, but if Citadel enters the arena, it won’t engage with sports derivatives.

That jibes with comments made by others in the Wall Street community that are kicking the tires on prediction markets entries.

For example, JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon recently said the bank is interested in prediction markets, but it would avoid sports derivatives.