As we read of writedowns, impending bankruptcies, and the faltering U.S. consumer, it's interesting to get a glimpse at the players behind this whole snafu.

The Wall Street Journal published an article today about Magnetar Capital, a fund started by a star trader from Citadel Investment Group. Magnetar was a key player in the structuring of CDOs, or collateralized debt obligations. Magnetar acted as a "lynch-pin investor" in over $30 billion of these syndicated bundles of subprime mortgages and derivatives, according to the article.

In spite of the losses being racked up on Wall Street, the fund, with about $9 billion in assets, made about 25% returns last year.

According to the article, "Magnetar swooped in on securities that it believed could become troubled but were paying big returns. CDOs are sliced based on risk, with the riskiest pieces having the highest yield but the greatest chance of losing value." Magnetar concentrated its trading on these riskiest pieces.

Continue reading Hedge funds profit from subprime mess

Hedge funds profit from subprime mess originally appeared on BloggingStocks on Mon, 14 Jan 2008 14:06:00 EST. Please see our terms for use of feeds.