Citadel Investment Group’s bond issue has generated a lot of media buzz, including reports that the bonds and initial public offerings by others help make hedge funds less dependent on banks. There appears to be another incentive for becoming more self-sufficient: It’s cheaper. Citadel reportedly spent $5.5 billion in associated investment costs last year; the net asset value of its two hedge funds was $13 billion. The high fees, which surprised Wall Street types, reportedly are the byproduct of frequent trades and heavy-duty leverage, which at the end of August, according to FT, was 12.5 times. More than 90% of that money, disclosed in the Citadel’s prospectus for the $2 million bond, went to pay for interest to those who own the securities lent to Citadel, such as banks and hedge funds. Given the high cost of doing business, it is no wonder Citadel and others are mulling moving some of their business in-house with their own trading units. According to the prospectus, the Chicago-based firm may create a separate division to hand some functions "such as certain trade executions, financing and/or clearing functions," and then would not only lower its expenses but also create a new stream of revenue by marketing its services to third parties. That could hit banks in the pocket in two ways: by HFs taking away their business, and then by competing with the banks. By the way, Financial News reports that Citadel’s 1,069 staffers – including founder, president and CEO Ken Griffin – have invested almost $2 billion of their own money in funds they manage.