The story
History
Magnetar Capital was founded in 2005 by Alec Litowitz (formerly of Citadel LLC) and Ross Laser (formerly of Glenwood Capital Partners). Based in Evanston, Illinois, the firm started with $1.8 billion in capital, making it one of the largest hedge-fund launches at the time.
Since inception, the firm has invested across numerous strategies, but following the great financial crisis, Magnetar turned its focus to fixed income. Other strategies the firm has invested across include quantitative strategies, energy & infrastructure, and healthcare.
New York City-based Blackstone Group's hedge fund unit, Blackstone Alternative Asset Management, through its Strategic Capital Holdings Fund, bought a minority stake of Magnetar in 2015. Financials of the deal were not disclosed; Magnetar said the deal would help it expand, and management remained in place following the deal.
In 2022, David Snyderman succeeded co-founder Alec Litowitz as managing partner.
The firm's assets under management reached approximately $18.6 billion as of February 2025.
2006–2007 involvement with CDOs
Magnetar Capital was actively involved in the CDO markets during the 2006–2007 period, when it invested in the equity of about $30 billion worth of them. CDO investments are divided into risk-based tranches: The highest-risk slices offer the highest yield, whereas the safer pieces have lower yields. Magnetar Capital took long positions in the highest risk slices of synthetic CDOs and hedged those positions by placing short bets on safer slices called mezzanine tranches via credit default swaps (which act similarly to an insurance policy) because Magnetar considered the former to be underpriced relative to the latter.
By establishing this arbitrage, Magnetar could profit from this relative mispricing regardless of how the overall housing market changed. When the market collapsed in 2007, Magnetar lost money on the riskiest slices it bought, but made much more from the hedges because of the relative mispricing that it had anticipated. According to mortgage analysts, Magnetar Capital would have benefitted from its "Magnetar trade," as it was later referred to, regardless of whether the subprime market collapsed.
ProPublica's coverage of the CDO industry, which won a Pulitzer Prize in 2011, made a number of allegations regarding Magnetar Capital's CDO investments, including that Magnetar Capital's trades in the CDO market helped worsen the 2008 financial crisis by helping to structure CDOs the company was planning to short (bet against). Other claims made by the ProPublica series include: Magnetar Capital tried to influence CDO managers to buy riskier bonds to increase the likelihood of those CDOs failing; CDOs that Magnetar Capital invested in "defaulted" at a much higher rate than similar CDOs; and the CDO market would have "cooled off" in late 2005 had Magnetar Capital not entered the market, resulting in a less severe financial crisis. ProPublica did note that in its view, while Magnetar Capital's CDOs might have prolonged and exacerbated the 2008 financial crisis, the firm did not cause the crisis or the housing bubble.
Read the full text
Contrary to the allegations, Magnetar Capital maintains that it did not control asset selection for the CDOs in which it invested and that the firm did not place an overall bet against the housing market. The firm said its investments were market neutral and would have made money whether the housing market went up or down.
In 2010, the Securities and Exchange Commission filed a complaint against JP Morgan Chase for a deal in 2007 that involved securities picked by Magnetar Capital. JP Morgan settled the lawsuit for $153.6 million in 2011. Separately, in 2012, The Wall Street Journal reported that the SEC was investigating whether Magnetar Capital had any influence over asset selection of a $1.5 billion CDO created by Merrill Lynch called Norma CDO I, but the SEC took no action against the firm.
In 2010, Magnetar Capital's directors, among others, won the Ig Nobel Prize in economics. That same year, Intesa Sanpaolo named Magnetar Capital, and others, in its lawsuit against Credit Agricole, alleging fraud related to the CDO Pyxis ABS CDO 2006–1; however, the case was dismissed by a judge in 2013.
From Wikipedia’s article on Magnetar Capital, shared under CC BY-SA 4.0.4