This summer, as investor Nathaniel Brooks Horwitz and writer Sam Koppelman sought millions of dollars for their new start-up Hunterbrook, the pitch was simple: a venture that would combine a newsroom and a hedge fund.
The two 27-year-olds envisioned hiring reporters in far-flung corners of the world that had been neglected by legacy media outlets suffering falling advertising revenues. The newsroom would be funded by profits earned by the hedge fund arm of the business. The fund would get an advanced look at reporters’ market-moving stories and place trades before they went online for the public to read freely.
Investors such as Laurene Powell Jobs’ Emerson Collective, financier Marc Lasry and a new investment firm associated with ex-Wall Street Journal editor Matt Murray, provided $10mn in seed funding for the business. Many of the early backers were attracted to the prospect of finding new ways to fund investigative journalism, people familiar with the fundraising told the Financial Times.
Horwitz and Koppelman are targeting a $100mn raise for the hedge fund and aim to launch the news arm — provisionally named Watchdog — in early 2024. Investors have been told they get to be a part of “the first trading fund driven by a global publication”. Some journalists are already reporting stories for the website.
But after the FT broke news of Hunterbrook and its strategy earlier this week, questions have emerged concerning how the business would operate, how the fund would comply with securities law, and whether the lines would be blurred between hedge fund and newsroom.
“There’s a narrow needle to be threaded here,” said one of the people familiar with the venture. “How does the market perceive this with enough credibility without perceiving it as a hedge fund with a veneer [of journalism]?”
Details of the business have emerged from conversations with more than half a dozen people familiar with Hunterbrook’s plans.
Hunterbrook would sit somewhere between a traditional hedge fund, where analysts from around the globe compile information on trends that could move markets or certain companies, and activist short sellers who produce detailed reports on a specific company and build a position against it before releasing the information publicly.
Hunterbrook will hire reporters to write stories on trends and news that have a cascading effect on markets, including the price of commodities, currencies or companies. The hedge fund arm will have access to these articles before they are published and will trade on the information. The newsroom will also investigate individual companies and release reports, similar to short sellers such as Hindenburg Research and Muddy Waters.
A key differentiating factor in Horwitz and Koppelman’s business is that the hedge fund and the newsroom will be separated by a compliance team. Traders will not have input on the articles, and will only receive them through compliance. Reporters will also publish stories with information on which the hedge fund will not trade.
Several of the people who spoke to the FT said the details were still being hashed out. Yet Horwitz and Koppelman have blown past early fundraising targets, according to two people familiar with the matter, though there is still a lack of clarity on precisely how some aspects of the business will operate.
A crucial question concerns stories containing details from company insiders who share material non-public information, trading on which is banned by US securities law. As they have fleshed out the project, Horwitz and Koppelman have been working to put guidelines in place. Hunterbrook plans to provide compliance training for all the journalists it recruits.
Reporters at the company will not seek out material non-public information though, like a hedge fund, may encounter it while reporting.
Any articles written by Hunterbrook reporters will be reviewed by compliance officers for material non-public information and then a decision will be made on whether they are tradable stories for the hedge fund. In instances where articles contain material non-public information, the company plans to publish the stories without trading on the news before publication.
Using journalism to drive financial investments is not a new idea. Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team and panellist on CNBC’s Shark Tank, in 2006 launched Sharesleuth. The venture was smaller, with a handful of journalists on staff to report on suspected fraud or deception at companies, and still publishes occasionally.
Hedge funds also commonly hire journalists away from the news industry to work for them and investigate potential investments. Funds such as New York-based Hindenburg also speak to former employees of the companies in which they are investing in order to complement financial analysis.
Emily Bell, director of the Tow Center for Digital Journalism at Columbia Journalism School, said it was important to take the new venture seriously but added that it was fraught with ethical questions.
She said that while Hunterbrook could harness public data to generate content resembling journalism and actionable trading information, their reporters would face more limitations than traditional financial journalists.
“What happens when you uncover public data that is against your interest in terms of your positions in the market? Do you hold on to it? Do you short your own position?” Bell asked.
Bell also said blending news and trading could give trading houses’ research the appearance of journalism, diluting the essence of traditional reporting.
“I don’t think . . . it’s necessarily going to completely upend what we think of as a viable model for financial journalism. But it might cause more disruption in how trading houses think about their own generation of information and how it feeds into trades,” said Bell.
The pay reporters receive at Hunterbrook is also likely to be different from that offered by traditional newsrooms, though plans for remuneration are still being ironed out.
Reporters will get a base salary, but some of their income will also be tied to the investment fund’s performance: if the fund does well, reporters will have a share in those profits, according to sources. Reporters and analysts will be paid for getting scoops right. Hunterbrook has already hired about 25 people, including reporters, researchers and analysts.
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