Tuesday, April 20, 2010

Mangling Magnetar

The FT’s John Gapper has copy of the letter dispatched to Magnetar clients in the wake of the ProPublica investigation. In short, the hedge fund (as Gapper put it) has came out fighting against the accusations levelled against it.

The letter contains this chart:

On the subject of which, Magnetar states (emphasis ours):

From the inception of the strategy through to its conclusion, Magnetar believed that its overall portfolio, including macro hedges, would be profitable independent of the direction of the housing and subprime mortgage markets. We clearly explained this fact, and the reasoning behind it, to ProPublica. The graph (above) represents the average portfolio payoff profile over time, and clearly demonstrates that the payoff profile in respect of CDOs in which Magnetar invested was long-biased. Of particular note is the lower, darker line which represents the payoff profile of our long investments in these CDOs plus only those hedges referencing tranches in these same CDOs (that is, excluding the performance of hedges we purchased that related to transactions in which we had no long interest).

Got that?

Thought not.

(from FT, Apr 20 2010)

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