Hedge fund recruits investigative journalists to help with investment
Hunterbrook will have access to its writing staff’s reports ahead of the rest of the market
Hunterbrook, an investment firm, has begun hiring financial journalists who will support its research team in identifying deals. The writing room, which will operate independently of the investment division, will search for stories and share them with the hedge fund managers. These will then be used to position themselves for or against a listed company, a country or bonds. Once the investment has been made, the news will be published.
The individuals responsible for this initiative, as revealed by the Financial Times, are U.S. investor Nathaniel Brooks Horwitz and writer Sam Koppelman, both 27 years old. The project has leveraged $10 million in seed capital, which it intends to expand with further financing to reach $100 million.
One of Hunterbrook’s first recruits is Matt Murray, former editor of the Wall Street Journal (one of the world’s most influential business newspapers), who has been hired as a consultant.
While the final operation has not been defined, its promoters indicate that there will be two clearly distinct divisions. Firstly, there is the hedge fund, a type of investment vehicle that has full freedom of action. It can invest against companies or countries, take on debt, concentrate its portfolio on a couple of operations, among other functions. Secondly, there is the news desk of journalists (which will apparently be called Watchdog) and which will focus on reporting.
In order to avoid any legal problems, such as access to privileged information, there will be a legal department between the two business units where all the articles will pass through. This section will be tasked with determining whether a particular story can be passed on to the investment team for a transaction to be completed. Only after the investments have been made should the stories be published.
The modus operandi of hedge funds can sometimes be highly controversial. By shorting companies, they benefit from their value plummeting, and may therefore be eager to discredit a listed company’s business model or governance structure. It is important that their criticism is based on evidence.
The Gowex case
A well-known case in Spain of a company that was brought into disgrace by the actions of activist investors is that of Gowex. The company, founded by Jenaro García, sold projects for the installation of free Wi-Fi in public spaces. It was floated on the stock market in 2010 and its shares soared by 2,500%. That was until Gotham City Research stepped in. This firm, which focuses on due diligence-based investing, published a devastating report questioning the figures it reported and the audit reports. This prompted the stock to plummet and the suspension of trading, which made Gotham’s analysts/investors considerable gains. Jenaro Garcia eventually conceded responsibility and requested prison time before the judge.
There are hedge funds, such as Mudy Waters Research, which base their investment strategy on this type of operation — thoroughly investigating companies, detecting fraud or misconduct, shorting positions and then publishing reports and denouncing the findings. As a result, they profit from the share price drop. Sometimes, following a fierce battle for the narrative, hedge funds eventually lose, as was the case with hedge fund manager Bill Ackman’s crusade against Herbalife.
In the case of the start-up firm Hunterbrook, its promoters intend to have a clear picture of the possible legal issues and conflicts of interest that could arise for journalists working for the company. Especially when it comes to accessing privileged information.
“Rather than trying to predict or react to things, our idea is to time trades based on the news we publish ourselves,” Nathaniel Brooks Horwitz told potential investors, defining the company as “the first investment fund driven by a global publication,” according to an email obtained by the Financial Times.
The team of journalists will include people who have worked for the WSJ, the BBC and Barron’s, as well as “intelligence analysts.” Its goal will be to publish market research articles “like Bloomberg,” but without advertising or a subscription payment gateway.
Horwitz explained to potential investors that the fund will trade stocks, options, currencies, commodities and other assets. Hunterbrook’s initial investors include a former chief investment officer of JPMorgan and a former U.S. attorney general.
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