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    Magnetar and Peloton Questions

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    Vinay Goyal
    Magnetar deployed a CDO strategy in 2007 that involved taking short positions against subprime mortgage bonds packaged in CDOs. This differed from Peloton's strategy, which involved holding long positions in highly rated tranches of CDOs. Peloton faced a liquidity crisis in early 2008 due to losses on its CDO positions and reliance on short-term funding from UBS. Credit rating agencies contributed to the 2007-2008 financial crisis by giving investment-grade ratings to CDOs containing risky subprime mortgage bonds without properly accounting for the risk.

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    Magnetar and Peloton Questions

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    Vinay Goyal
    227 views1 page
    Magnetar deployed a CDO strategy in 2007 that involved taking short positions against subprime mortgage bonds packaged in CDOs. This differed from Peloton's strategy, which involved holding long positions in highly rated tranches of CDOs. Peloton faced a liquidity crisis in early 2008 due to losses on its CDO positions and reliance on short-term funding from UBS. Credit rating agencies contributed to the 2007-2008 financial crisis by giving investment-grade ratings to CDOs containing risky subprime mortgage bonds without properly accounting for the risk.

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    Magnetar deployed a CDO strategy in 2007 that involved taking short positions against subprime mortgage bonds packaged in CDOs. This differed from Peloton's strategy, which involved holding long positions in highly rated tranches of CDOs. Peloton faced a liquidity crisis in early 2008 due to losses on its CDO positions and reliance on short-term funding from UBS. Credit rating agencies contributed to the 2007-2008 financial crisis by giving investment-grade ratings to CDOs containing risky subprime mortgage bonds without properly accounting for the risk.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    227 views1 page

    Magnetar and Peloton Questions

    Uploaded by

    Vinay Goyal
    Magnetar deployed a CDO strategy in 2007 that involved taking short positions against subprime mortgage bonds packaged in CDOs. This differed from Peloton's strategy, which involved holding long positions in highly rated tranches of CDOs. Peloton faced a liquidity crisis in early 2008 due to losses on its CDO positions and reliance on short-term funding from UBS. Credit rating agencies contributed to the 2007-2008 financial crisis by giving investment-grade ratings to CDOs containing risky subprime mortgage bonds without properly accounting for the risk.

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    Case Study 2

    A Tale of Two Hedge Funds: Magnetar and Peloton


    (Case 5 from ST)
    It is a group work. Please work with your team members for the group home work on the
    following five questions:
    1. Summarize the CDO strategy deployed by Magnetar during 2007. How was this different from
    Pelotons strategy during 2007 and early 2008? How was it different from John Paulsons
    strategy? Although Magnetars bet was relatively safe, how could it have lost money? Think of
    one way other than the one mentioned in the case. How could Magnetar mitigate this risk?
    2. Describe Pelotons liquidity crisis, including UBSs role.
    3. Describe the role of credit rating agencies in the CDO market.
    4. What caused the 20072008 financial crisis? Discuss the role that banks, rating agencies,
    investors, and others played in CDOs. What principal-agent problems existed? Why did so many
    astute investors not recognize these signs? What should be done to prevent this crisis from
    happening again?
    5. Discuss John Paulsons success in the financial crisis. Provide details on what he did? Is he
    always successful in his career?

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