How the Hedge Fund Magnetar Is Financing the AI Boom

Tracy Alloway (0:03)

Bloomberg Audio Studios, podcasts, radio, news. Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:24)

And I'm Joe Weisenthal.

Tracy Alloway (0:26)

Joe, AI is so hot right now. In the immortal words of Mugatu, AI is so hot.

Joe Weisenthal (0:33)

It is, yes, it is really hot. You know, you hear some things, oh, there's a little bit of slowing down and some of the progress on the models. But the recent Nvidia results speak for themselves. There is nothing that I've seen yet that would suggest that this macro trend, at least as an investment trend, and I'm not talking about stocks per se, is anywhere close to, quote, slowing down.

Tracy Alloway (0:57)

Yeah. And the interesting thing is we seem to be having more and more players, some new types of players that are getting into the space. So, you know, we have AI funds kind of launching left and right. And one of the newest players is a hedge fund called Magnetar. And I know them like primarily for credit stuff. I think they were big in red cap trades for a while. Yeah. And now they're launching an AI fund, a VC fund, which is kind of unusual for this type of hedge fund to do.

Joe Weisenthal (1:25)

Totally. I mean, I've heard of Magnetar for a long time, obviously going back to the early 2010s at least. And look, I'm not surprised that various investors are looking for what is their distinct way into this space. And of course, look, we've done interviews with VCs of various nature and positions in the past. And so I guess, you know, there's sort of two questions to my mind. Anytime we're going to be talking to someone investing in early stage or any stage of AI, which is obviously, what is the thesis? What's going to win out? Where will value accrue? But then from an investor perspective, given so many entrants into this space specifically, whether on the public equity side, whether on the private side, whether on the VC side, early stage, late stage, what do they, as a fund or an investor, bring to the table, or will be able to see that the other billions of dollars competing for AI profits do not see?

Tracy Alloway (2:24)

I have a slightly different question, which is for these types of investors, like how much is it about how good the technology is that they're investing in versus how much is it about getting in the right position in the capital stack? So I think it's going to be really interesting to talk to someone who's coming from this perspective. And without further ado, we have the perfect guest. We're going to be speaking with Jim Prusko. He is a partner and senior portfolio manager on Magnetar's alternative credit and fixed income team. Jim, welcome to the show.

Jim Prusko (2:58)

Thank you. Great to be here.

Tracy Alloway (2:59)

So how does someone on a hedge fund's fixed income team get into AI?

Jim Prusko (3:05)

Well, we have a long history of investments in private companies really dating back to an increased focus after the financial crisis, when spreads and yields got tighter and the private markets seem more interesting. And we've often partnered with platforms where we thought we could grow the platform and generate an interesting asset, either a pool of cash flowing assets or help grow the company and participate in that growth and support them through financing and other things like we can support them through helping them with hiring or accounting or other systems they need and just to help them grow generally. And so I've been doing that a long time, and we've been a number of areas like auto lending in Ireland. And then we've moved into various fintech companies. We were one of the first institutional investors in open door before they went public. We're supporting and investing in a very interesting fintech that is financing restaurants right now.

And so we felt we had experience in that space. And then that sort of overlapped with our relationship and our investment in Coreweave, where we were the first institutional investor in Coreweave in 2021 So we were very early in the trend of putting capital into the AI infrastructure space. And that's just sort of grown as this whole market has grown to encompass literally everything now. You know, we continue to look for smart ways to invest. And one of those ways we felt was, what can we provide that's of value? And one of the things we can provide, besides the general help we can give a growth stage company, is compute, because that is the scarce resource right now. And that's where all the capital is going to the various parts of the value chain to deliver compute. And so there's a competition to get compute. And if you're a smaller company with limited capital or limited access to capital, it can be difficult to get that. And so that was sort of the value proposition we thought we could bring to bear.