The news-driven hedge fund raises 100 million dollars to trade on journalists’ scoops

A US hedge-fund raised $100mn for trading based on articles from its affiliated newsroom. This is a new experiment to fund investigative reporting at a time when the media industry is suffering a new round of layoffs.

The venture is an attempt to combine the investigative journalism that newsrooms are known for with a long/short Hedge Fund. Hunterbrook Capital places trades on the basis of scoops discovered by Hunterbrook Media reporters, who are separated by compliance. These scoops will only be based upon publicly available information.

These companies share officers. They include two co-founders, chief executive Nathaniel Horwitz, and publisher Sam Koppelman, as well as general counsel Fitzann Reid and head of operations Emily Pate.

Koppelman said that ” journalism has been viewed as a challenging business by many, but journalists have made billions off reporting for years.” “Good reporting doesn’t have be a bad thing.”

Hunterbrook Media published a report on Tuesday alleging that United Wholesale Mortgage was unfairly encouraging independent mortgage brokers, to channel almost all their business to the largest US mortgage lender.

In the story, Hunterbrook Capital disclosed that it had taken a short-term position in UWM, UWM’s primary rival, before publication. It also took a long-term position in Rocket Mortgage, UWM’s principal competitor. UWM’s shares closed the day at a loss of 8.5%, while Rocket Mortgage fell by almost 5%.

Hunterbrook’s article also stated that its “nonprofit affiliate” was partnering with the law firm Boies, Schiller, Flexner in order to investigate a class action lawsuit against UWM for homebuyers. Later on Tuesday, a proposed class-action lawsuit against UWM and its chief executive Mat Ishbia as well as its holding company was filed.

Horwitz described the article as “a great example of what we wanted to do in terms of reporting.” It is at the intersection between [reporting] on issues that are important to many people and that they should be aware of, as well as a business model which can help fund more of this work.

UWM’s spokesperson, however, said that the report is “riddled” with inaccuracies and that Hunterbrook using journalists to short a stock was unethical.

“Hunterbrook” is not a media organisation. The UWM spokesperson stated that it is a hedge-fund manipulating the stock market by sensationalising information.

Hunterbrook Media’s journalism will be funded by fees paid to the hedge fund rather than through advertising or subscriptions.

Koppelman stated that “Nathaniel, and I, had the belief that the tools and people of reporting, journalists and [Open Source Intelligence] experts, were radically underestimated.”

Horwitz and Koppelman are both in their late 20s and met each other at Harvard. They have little experience in stock trading or journalism. Horwitz is a biotechnologist and Koppelman was an author at Fenway Strategies, a speech writing and communication firm. Horwitz, the son Pulitzer Prize-winning journalist Tony Horwitz, and Geraldine Brooks, a novelist who was also a Pulitzer Prize winner, are both connected to the media industry. Koppelman, on the other hand, is the child of Billions creator Brian Koppelman, and novelist Amy Koppelman.

They have also enlisted the help of several journalists who are veterans in their respective fields, such as former Wall Street Journal Editor Matt Murray, ProPublica’s founder Paul Steiger and Bethany McLean – an investigative journalist who was among the first to raise concerns over Enron’s accounting.

Three full-time journalists and a group overseas freelancers have been hired. They are from places like Brazil, Mongolia, and Namibia. Courtney Dunlevie is the only full-time hedge fund trader. She was previously with Morgan Stanley and Commonstock.

Koppelman & Horwitz estimate that running the newsroom will cost around $5mn this year. The $10mn raised in seed funding last year should support operations until the end of the next year. The hedge fund will charge investors the traditional 2% management fee, and a 20% performance fee. Hunterbrook Media will be paid for its research by the hedge fund.

Hunterbrook Media will be separated from Hunterbrook Capital to differentiate it from other investment companies such as Hindenburg Research or Muddy Waters, which also conduct financial research and take positions on companies.

Hunterbrook Media plans to publish stories on which the company has no financial opinion, but it’s unclear if it will run stories that may harm active trading positions.

The launch of the venture comes at a time when the news industry is in turmoil, with layoffs occurring amongst start-ups like BuzzFeed, Business Insider, and Vice, once hailed as the future for news media. Legacy publications such as Sports Illustrated and the Los Angeles Times have also been affected.

Journalism experts have warned about possible conflicts of interest.

Securities fraud could be committed by trading on material, non-public, information that journalists uncover regularly. Fitzann Reid is the former US Securities and Exchange Commission attorney who has been appointed by the group as its general counsel to decide whether articles from the Hunterbrook news section can be shared with the hedge fund.

Horwitz didn’t disclose the names of the limited partners that provided the $100mn in funding. He said, however, that the majority of it came from institutional investors and a few individuals, as well as a small number of family offices.

In October, it was reported that among the early investors in Hunterbrook were Laurene Powell Jobs Emerson Collective and General Catalyst’s co-founder David Fialkow. Also included in the list of investors are Avenue Capital cofounder Marc Lasry, as well as Outside the Box Investments where Murray also serves on the advisory board.