Meeting the Minds of Magnetar

In the past few years, few hedge fund firms have generated as much publicity — and controversy — as Magnetar Capital.

The firm, founded by Citadel alum Alec Litowitz and Glenwood Capital Investments vet Ross Laser back in 2005, attracted attention at the time of its launch thanks to Lito-witz’s track record at Citadel. But Litowitz and company spent the next several years studiously avoiding the spotlight, focusing instead on growing their business. Then came the financial crisis. Like a handful of other hedge fund firms, Magnetar made a handsome profit in 2007 after the short side of a long-short play on subprime mortgages netted the firm a 76 percent gain in one of its funds. But that same investment, dubbed the Magnetar Trade, brought the firm notoriety when journalists accused the firm of stuffing the deals with lousy assets it knew would fall fast when the market finally crashed.

Magnetar has firmly denied these allegations. But except for responding to the specific charges raised in the news reports, the firm has continued to shun the media. So when Litowitz and Laser agreed to let me inside their firm’s inner sanctum, I jumped at the chance.

Magnetar’s headquarters are spread over several floors of the Bank One Building in Evanston, a sleepy college town outside Chicago; the team running Magnetar comprises a group of suburban dads. But although the firm is physically far from Wall Street, it is at the forefront of financial engineering, consistently generating complex, multilayered trades that have helped the firm outperform most of the comparable hedge fund indexes this year. That performance is one reason the firm has been able to raise money in spite of the clouds swirling around it. Magnetar’s principals are clearly eager to put the controversy behind them, while its critics argue the firm deserves further scrutiny. As for the firm’s investors, one has only to look at Magnetar’s assets to see where they stand. Even with all the controversy, Magnetar now manages more money than it ever has.