Magnetar Becomes Another Hedge Fund To Raise The Gates
Financial reports surfaced yesterday that $8 billion hedge fund Magnetar Capital became yet another hedge fund to “raise the gates” on withdrawals after clients requested more than 15% from the firm’s $4.8 billion multi-strategy fund, according to Bloomberg news.
Concerns about another wave of hedge fund redemptions coming in January exacerbated by the Bernard Madoff scandal, was one of the factors that kept the market in negative territory yesterday, as the Sun (speculation) conjoined Pluto in Capricorn. Hedge funds fall under the domain of Pluto, the planetary energy that represents extreme wealth (as well as extreme financial loss/bankruptcy). Pluto rules debt, and hedge funds require a high level of leverage to execute their trading strategies. Hedge funds serve wealthy individual and institutional investors, and as befitting their Pluto energy, hedge funds are private and largely unregulated.
Pluto also rules conditions that have become toxic, and the fallout in the hedge fund industry has been particularly hard. “Raising the gates” is an appropriate term to describe restricting hedge fund withdrawals as Pluto is in Capricorn, a sign ruled by Saturn whose famous rings represent physical boundaries and limitations.
I had written a post on “Magnetar’s Magnetism” back in January after reading a Wall Street Journal article that described Magnetar’s founder, former Citadel trader Alec Litowitz, as an astronomy buff. Magnetar’s strategy was to specifically purchase the most toxic tranches of CDOs and then hedge it by betting against the “safest” level tranches of the same CDOs.
The New York Times reports that the firm’s two multi-strategy funds, Magnetar Capital Fund Ltd. lost 30.85%, and Magnetar Capital Fund LP lost 25.6% year to date. The Times says that “Magnetar will pay the 15 percent redemptions at the end of the year, but halt any further withdrawals. Two-thirds of the total redeemed will be paid in cash and the remaining one-third can either be invested in Magnetar Constellation Funds*, which are multi-strategy credit funds or rolled into Solar Capital, a fund that mostly invests in debt and equity of companies owned by private equity funds.” Even though Magnetar also hedged its bets through buying credit default swaps, it wasn’t enough to protect its funds from the radioactive fallout of the gamma rays emitted by the neutron star. But that’s what happens when you name a hedge fund Magnetar.
Pluto in Capricorn (2008-2024) will turn the hedge fund industry upside down. Thousands of funds will collapse into a black hole, while the survivors will be forced to transform into highly regulated and structured entities taxed at the corporate rate. And since Capricorn rules governments, the biggest institutional hedge fund investor could end up being US taxpayers. Last Friday the Bush administration gave cash rich hedge fund Cerberus Capital Management a $4 billion loan to keep Chrysler on life support through March 31, 2009. Cerberus Capital Management takes its name from the mythical tri-headed dog who guards the gates of Hades to prevent people from leaving/withdrawing their money. Pluto is the Greek name for Hades, the lord of the underworld. As symbolism becomes reality, how likely is it that Cerberus will open up the gates to pay back the government’s money?
*Some of Magnetar’s Constellation funds are Aquarius, Scorpius, and Sagittarius.
Related Post: “Stephen Schwarzman’s Seven Principles For Financial Reform”
Posted 12/23/2008 07:56:00 PM