Citadel, definitely. They already have started doing certain things once the domain of investment banks -- they make markets in stocks and options, for example. Recently they've hired a number of prominent fixed income traders, e.g. the head of JPMorgan's mortgage trading department. I think they're well on their way to becoming a leading securities firm. They're certainly big enough to purchase a smaller boutique to bring in expertise in mergers, IPOs, debt offerings, etc. The only problem is regulatory, given that they're a hedge fund, but I imagine this eventually could be resolved -- after all, Citi and JPMorgan all have large internal hedge fund arms.

Blackrock is a very different company. They manage more than a trillion dollars worth of assets, making Citadel seem paltry at ~$25bn. They haven't really shown much interest in branching away from their area of expertise: fixed income asset management.

Just talked to a Blackrock guy today. Something really interesting that I didn't know is that Blackrock does not invest on their own behalf. He said this is why their CEO, Larry Fink, is often quoted as stating: "We do not take on balance sheet risk".

This severely limits balance sheet risk and although it doesn't make them bullet proof or anything, it certainly makes me feel better about their chances. Additionally, although this strategy hurt them in the short term, it seems to be working in the long term.