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Magnetar Capital LLC is a multi-product, multi-strategy alternative asset management firm based in Evanston, Illinois. The firm was founded in 2005 and invests in alternative credit and fixed-income, systematic investing, Venture capital, and fundamental and event-driven investing strategies. Magnetar has additional offices in New York City, London, and Menlo Park.
The firm was actively involved in the collateralized debt obligation (CDO) market during the 2006–2007 period. In some articles critical of Magnetar Capital, the firm's arbitrage strategy for CDOs is described as the "Magnetar trade". The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going , by Jesse Eisinger and Jake Bernstein, ProPublica, April 9, 2010 In 2006–2007, Magnetar Capital "facilitated the creation of a few of the worst-performing collateralized debt obligations", many named after stars or constellations. While the CDOs Magnetar Capital helped create led to losses on Wall Street, the company profited as a result of its hedged investment strategy; Magnetar Capital had protected itself against losses on CDOs by purchasing credit default swaps. As of 2010, 23 of the CDOs in which Magnetar Capital invested had become "nearly worthless". "The Inside Job. Act One: Eat My Shorts" (Episode 405), This American Life. (2010-04-09), Alex Blumberg, Jake Bernstein, Jesse EisingerThe "nearly worthless" comment is at 36:40 into the This American Life "Inside Job" audio story Despite investigations by the U.S. Securities and Exchange Commission into several deals in which Magnetar Capital invested, no enforcement action was taken against the firm.
Following the financial crisis, the firm pivoted into quantitative trading and exploring new investments, including films, commercial jets, and real estate. The firm entered the film financing business in 2013, when it provided most of the funding for a $400 million co-financing deal that provided 20th Century Fox with money to fund a slate of films over a five-year period.
In 2014, Magnetar Capital introduced two new energy funds, Magnetar Solar Holdings and Magnetar Solar Opportunities Fund.
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.
In January 2013, the firm became the largest homeowner in Huber Heights, Ohio, by buying a portfolio of almost 2,000 rental homes from the family of the town's original developer. It rents these homes as part of its investment strategy. Magnetar Capital also invests in European real estate.
In 2016, Magnetar Capital owned about 344 megawatts of the UK's solar production. The firm sold its UK solar portfolio to Rockfire Capital in 2018.
Magnetar Capital bought a majority stake in car finance First Citizen, of Dublin, Ireland, in 2017.
As of 2018, energy continues to be an investment interest of the company, including a stake in Double Eagle Energy Holdings III Permian in Texas.
CDO investments are divided into risk-based tranches: The highest-risk slices offer the highest yield, whereas the safer pieces have lower yields. With what some observers have referred to as the "Magnetar trade," 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 regardless of whether the subprime market collapsed.
ProPublicas 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.
Janet Tavakoli, a financial-industry consultant, wrote in her 2008 book, Structured Finance and Collateralized Debt Obligations, that Magnetar Capital's Constellation CDOs "seemed designed to fail".Structured Finance and Collateralized Debt Obligations, Second Edition, Janet Tavakoli, publisher John Wiley & Sons, Inc., 2008, Constellation CDOs: pgs 413-415
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. According to the Financial Times, "Magnetar argues that it was not shorting the subprime market, but was arbitraging between different layers of CDOs, taking advantage of the fact that it could get a yield of 20 per cent on the equity and then hedge that by shorting the mezzanine layers".
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, The Magnetar Fallout: Who’s Been Charged, Has Settled, or is Now Being Investigated? by Cora Currier, ProPublica, July 19, 2012 but the SEC took no action against the firm.
In 2010, Magnetar Capital's directors, among others, won the Ig Nobel Prize in economics for "creating and promoting new ways to invest money—ways that maximize financial gain and minimize financial risk for the world economy, or for a portion thereof".
That same year, Intesa Sanpaolo named 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. The suit alleged that a Credit Agricole unit concealed Magnetar's role in the collateralized debt obligation.
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