Inside Hunterbrook’s plans to create a ‘news hedge fund’

This summer, as investor Nathaniel Brooks Horowitz and writer Sam Kopelman sought millions of dollars for their new startup Hunterbrook, the idea was simple: a venture that combined a newsroom and a hedge fund.

The two 27-year-olds envisioned hiring reporters in remote areas of the world that had been neglected by legacy media struggling with declining advertising revenues. The newsroom will be funded from profits generated by the company’s hedge fund arm. The fund will get an advanced look at reporters’ market-moving stories and trades before they go online for the public to read freely.

Investors such as Laurene Powell Jobs’ Emerson Collective, financier Marc Lasry, and a new investment firm linked to former Wall Street Journal editor Matt Murray have provided $10 million in seed funding for the company. Many early backers were attracted by the prospect of finding new ways to fund investigative journalism, people familiar with the fundraising told the Financial Times.

Horowitz and Kopelman are targeting $100 million for the hedge fund, and aim to launch the news arm — tentatively called Watchdog — in early 2024. Investors have been told they will be part of “the first global publication-driven trading fund.” Some journalists are already covering stories for the site.

But after the Financial Times reported on Hunterbrook’s news and strategy earlier this week, questions emerged about how the company would operate, how the fund would comply with securities law, and whether the lines between a hedge fund and a newsroom were blurring.

“There is a narrow needle to thread here,” said one person familiar with the project. “How can the market look at this with enough credibility without looking at it as a hedge fund with a veneer (for the press)?” he asked.

Details of the work emerged from conversations with more than a half-dozen people familiar with Hunterbrook’s plans.

Hunterbrook falls somewhere between a traditional hedge fund, where analysts from around the world collect information about trends that could move markets or particular companies, and activist short sellers who produce detailed reports on a particular company and build a position against it before publishing the information. publicly.

Hunterbrook will hire reporters to write stories on trends and news that have a cascading impact on markets, including the prices of commodities, currencies or companies. The hedge fund arm will have access to these articles before they are published and will trade based on the information. The newsroom will also investigate individual companies and issue reports, similar to short sellers such as Hindenburg Research and Muddy Waters.

A key differentiator for Horowitz and Kopelman’s business is that the hedge fund and newsroom will be separated by a compliance team. Traders will have no input on the articles, and will only gain input through compliance. Reporters will also publish stories containing information that a hedge fund would not trade.

Several people who spoke to the Financial Times said the details were still being worked out. However, Horowitz and Kopelman have exceeded early fundraising goals, according to two people familiar with the matter, though there is still a lack of clarity on specifically how some aspects of the business will work.

The critical question concerns stories containing details of company insiders sharing material non-public information, the trading of which US securities law prohibits. As they fleshed out the project, Horwitz and Kopelman were working to put the guidelines into practice. Hunterbrook plans to provide compliance training to all journalists it hires.

Reporters at a company will not be looking for material non-public information, even though they may encounter it while reporting, such as a hedge fund.

Any articles written by Hunterbrook reporters will be reviewed by compliance officers for material non-public information, and then a determination will be made as to whether they are tradable stories for a hedge fund. In cases where articles contain material non-public information, the Company plans to publish the stories without trading on the news prior to publication.

Using journalism to drive financial investments is not a new idea. Mark Cuban, billionaire owner of the Dallas Mavericks basketball team and speaker on CNBC. Shark tankIn 2006, Sharesleuth was launched. The project was smaller, with a few journalists on staff to report on suspected corporate fraud or deception, and still publishes occasionally.

Hedge funds also typically hire journalists outside of the news industry to work with them and investigate potential investments. Funds like New York-based Hindenburg also talk to former employees of the companies they invest in in order to complete financial analysis.

Emily Bell, director of the Tao Center for Digital Journalism at Columbia Journalism School, said it was important to take the new project seriously, but added that it was fraught with ethical issues.

While Hunterbrook can harness public data to create journalism-like content and actionable business information, its reporters will face more restrictions than traditional financial journalists, she said.

“What happens when you make public statements that conflict with your interest regarding your market positions? Do you stick with it? Do you short your own position?” Bill asked.

Bell also said that mixing news and trading can give trading houses’ research the appearance of journalism, diluting the essence of traditional reporting.

“I don’t think…it will necessarily upend what we consider to be a viable model for financial journalism. But it may cause further disruption in how trading houses think about their information generation and how they feed it into trades,” Bell said.

The pay reporters at Hunterbrook will also likely be different from those offered by traditional newsrooms, although bonus plans are still being worked out.

The reporters will receive a base salary, but some of their income will also be tied to the investment fund’s performance: If the fund performs well, the reporters will have a share in those profits, according to the sources. Journalists and analysts will be paid to get the right scoop. Hunterbrook has already hired about 25 people, including reporters, researchers and analysts.

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