A Tale of Two Hedge Funds: Magnetar and Peloton SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
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Case Study SWOT Analysis Solution
Case Study Description of A Tale of Two Hedge Funds: Magnetar and Peloton
Hedge fund Magnetar Capital had returned 25 percent in 2007 with a strategy that posed significantly lower risk to investors than the S&P 500. Magnetar had made more than $1 billion in profit by noticing that the equity tranche of CDOs and CDO-derivative instruments were relatively mispriced. It took advantage of this anomaly by purchasing CDO equity and buying credit default swap (CDS) protection on tranches that were considered less risky. Now it was the job of Alec Litowitz, chairman and chief investment officer, to provide guidance to his team as they planned next year's strategy, evaluate and prioritize their ideas, and generate new ideas of his own. An ocean away, Ron Beller was contemplating some very different issues. Beller's firm, Peloton Partners LLP, had been one of the top-performing hedge funds in 2007, returning in excess of 80 percent. In late January 2008 Beller accepted two prestigious awards at a black-tie EuroHedge ceremony. A month later, his firm was bankrupt. Beller shorted the U.S. housing market before the subprime crisis hit, and was paid handsomely for his bet. After the crisis began, however, he believed that prices for highly rated mortgage securities were being unfairly punished, so he decided to go long AAA-rated securities backed by Alt-A mortgage loans (between prime and subprime), levered 9x. The trade moved against Peloton in a big way on February 14, 2008, causing $17 billion in losses and closure of the firm.
Swot Analysis of "A Tale of Two Hedge Funds: Magnetar and Peloton" written by David P. Stowell, Stephen Carlson includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Beller Magnetar facing as an external strategic factors. Some of the topics covered in A Tale of Two Hedge Funds: Magnetar and Peloton case study are - Strategic Management Strategies, International business and Finance & Accounting.
Some of the macro environment factors that can be used to understand the A Tale of Two Hedge Funds: Magnetar and Peloton casestudy better are - – geopolitical disruptions, increasing household debt because of falling income levels, central banks are concerned over increasing inflation, challanges to central banks by blockchain based private currencies, increasing energy prices, increasing transportation and logistics costs, increasing government debt because of Covid-19 spendings,
supply chains are disrupted by pandemic , talent flight as more people leaving formal jobs, etc
Introduction to SWOT Analysis of A Tale of Two Hedge Funds: Magnetar and Peloton
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in A Tale of Two Hedge Funds: Magnetar and Peloton case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Beller Magnetar, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Beller Magnetar operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of A Tale of Two Hedge Funds: Magnetar and Peloton can be done for the following purposes –
1. Strategic planning using facts provided in A Tale of Two Hedge Funds: Magnetar and Peloton case study
2. Improving business portfolio management of Beller Magnetar
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Beller Magnetar
Strengths A Tale of Two Hedge Funds: Magnetar and Peloton | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Beller Magnetar in A Tale of Two Hedge Funds: Magnetar and Peloton Harvard Business Review case study are -
Strong track record of project management
– Beller Magnetar is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Highly skilled collaborators
– Beller Magnetar has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in A Tale of Two Hedge Funds: Magnetar and Peloton HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Effective Research and Development (R&D)
– Beller Magnetar has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study A Tale of Two Hedge Funds: Magnetar and Peloton - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
High switching costs
– The high switching costs that Beller Magnetar has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Successful track record of launching new products
– Beller Magnetar has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Beller Magnetar has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Cross disciplinary teams
– Horizontal connected teams at the Beller Magnetar are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Sustainable margins compare to other players in Finance & Accounting industry
– A Tale of Two Hedge Funds: Magnetar and Peloton firm has clearly differentiated products in the market place. This has enabled Beller Magnetar to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Beller Magnetar to invest into research and development (R&D) and innovation.
High brand equity
– Beller Magnetar has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Beller Magnetar to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Organizational Resilience of Beller Magnetar
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Beller Magnetar does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Beller Magnetar digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Beller Magnetar has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Training and development
– Beller Magnetar has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in A Tale of Two Hedge Funds: Magnetar and Peloton Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Low bargaining power of suppliers
– Suppliers of Beller Magnetar in the sector have low bargaining power. A Tale of Two Hedge Funds: Magnetar and Peloton has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Beller Magnetar to manage not only supply disruptions but also source products at highly competitive prices.
Weaknesses A Tale of Two Hedge Funds: Magnetar and Peloton | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of A Tale of Two Hedge Funds: Magnetar and Peloton are -
Interest costs
– Compare to the competition, Beller Magnetar has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Lack of clear differentiation of Beller Magnetar products
– To increase the profitability and margins on the products, Beller Magnetar needs to provide more differentiated products than what it is currently offering in the marketplace.
Low market penetration in new markets
– Outside its home market of Beller Magnetar, firm in the HBR case study A Tale of Two Hedge Funds: Magnetar and Peloton needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study A Tale of Two Hedge Funds: Magnetar and Peloton, in the dynamic environment Beller Magnetar has struggled to respond to the nimble upstart competition. Beller Magnetar has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study A Tale of Two Hedge Funds: Magnetar and Peloton, is just above the industry average. Beller Magnetar needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Capital Spending Reduction
– Even during the low interest decade, Beller Magnetar has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Beller Magnetar supply chain. Even after few cautionary changes mentioned in the HBR case study - A Tale of Two Hedge Funds: Magnetar and Peloton, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Beller Magnetar vulnerable to further global disruptions in South East Asia.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study A Tale of Two Hedge Funds: Magnetar and Peloton, it seems that the employees of Beller Magnetar don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Increasing silos among functional specialists
– The organizational structure of Beller Magnetar is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Beller Magnetar needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Beller Magnetar to focus more on services rather than just following the product oriented approach.
High cash cycle compare to competitors
Beller Magnetar has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High bargaining power of channel partners
– Because of the regulatory requirements, David P. Stowell, Stephen Carlson suggests that, Beller Magnetar is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Opportunities A Tale of Two Hedge Funds: Magnetar and Peloton | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study A Tale of Two Hedge Funds: Magnetar and Peloton are -
Lowering marketing communication costs
– 5G expansion will open new opportunities for Beller Magnetar in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Beller Magnetar can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Beller Magnetar can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Beller Magnetar can use these opportunities to build new business models that can help the communities that Beller Magnetar operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Leveraging digital technologies
– Beller Magnetar can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Beller Magnetar can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Beller Magnetar in the consumer business. Now Beller Magnetar can target international markets with far fewer capital restrictions requirements than the existing system.
Manufacturing automation
– Beller Magnetar can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Developing new processes and practices
– Beller Magnetar can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Using analytics as competitive advantage
– Beller Magnetar has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study A Tale of Two Hedge Funds: Magnetar and Peloton - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Beller Magnetar to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Beller Magnetar to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Building a culture of innovation
– managers at Beller Magnetar can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Buying journey improvements
– Beller Magnetar can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. A Tale of Two Hedge Funds: Magnetar and Peloton suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Beller Magnetar is facing challenges because of the dominance of functional experts in the organization. A Tale of Two Hedge Funds: Magnetar and Peloton case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Threats A Tale of Two Hedge Funds: Magnetar and Peloton External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study A Tale of Two Hedge Funds: Magnetar and Peloton are -
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Beller Magnetar in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Beller Magnetar with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Beller Magnetar business can come under increasing regulations regarding data privacy, data security, etc.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Beller Magnetar needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Beller Magnetar in the Finance & Accounting sector and impact the bottomline of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Beller Magnetar can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study A Tale of Two Hedge Funds: Magnetar and Peloton .
Consumer confidence and its impact on Beller Magnetar demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Increasing wage structure of Beller Magnetar
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Beller Magnetar.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Beller Magnetar can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Stagnating economy with rate increase
– Beller Magnetar can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Regulatory challenges
– Beller Magnetar needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Beller Magnetar will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study A Tale of Two Hedge Funds: Magnetar and Peloton, Beller Magnetar may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Weighted SWOT Analysis of A Tale of Two Hedge Funds: Magnetar and Peloton Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study A Tale of Two Hedge Funds: Magnetar and Peloton needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study A Tale of Two Hedge Funds: Magnetar and Peloton is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study A Tale of Two Hedge Funds: Magnetar and Peloton is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of A Tale of Two Hedge Funds: Magnetar and Peloton is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Beller Magnetar needs to make to build a sustainable competitive advantage.