A US hedge fund has raised $100 million to make trades based on stories from its affiliated newsroom, launching a new experiment in funding investigative journalism as the media industry suffers a fresh wave of layoffs.
The business is an effort to pair the type of investigative journalism typically done by newsrooms with a long-short hedge fund. The fund, Hunterbrook Capital, trades based on scoops discovered by journalists in the newsroom, Hunterbrook Media, which is separated by a layer of compliance. Such scoops would be based only on publicly available information.
The companies, whose plans were first reported by the Financial Times last year, share a number of officials, including two co-founders – CEO Nathaniel Horwitz and publisher Sam Koppelman – general counsel Fitzann Reid and Chief of Operations Emily Pate.
“Journalism is widely seen as a tough business, but people have been making billions of dollars from journalism for years,” Koppelman told the FT. “Good reporting shouldn’t be bad business.”
Hunterbrook Media launched a report Tuesday that alleged United Wholesale Mortgage had unfairly incentivized independent mortgage brokers to funnel nearly all of their business to the largest U.S. mortgage lender.
The story contained the revelation that Hunterbrook Capital had placed a short position in UWM prior to publication and a long position in Rocket Mortgage, UWM’s primary rival. UWM shares ended the day down 8.5%, but Rocket Mortgage also fell, closing down nearly 5%.
Hunterbrook’s story also noted that its “nonprofit affiliate” had partnered with law firm Boies Schiller Flexner to explore a class action lawsuit against UWM on behalf of homebuyers.
The article was “an excellent example of the kind of reporting we set out to do,” Horwitz said. “It’s at the crossroads of [reporting] that affects a lot of people, that people should know about, and a business model that can fund more of this work.”
A UWM spokesperson, however, said the report was “full of inaccuracies” and called Hunterbrook’s use of journalists to short a stock “unethical.”
“Hunterbrook is not a news organization. This is a hedge fund that sensationalizes public information to manipulate the stock market and enrich itself and its investors,” the UWM spokesperson said.
Hunterbrook Media will focus on investigative work and foreign journalism in under-covered regions, funding its journalism with hedge fund fees, rather than advertising or subscriptions.
“Nathaniel and I were convinced that the tools of reporting and the people who did it, journalists and [Open Source Intelligence] specialists, they were radically undervalued,” Koppelman said.
Horwitz and Koppelman, who are in their early 30s and met at Harvard, have limited backgrounds in journalism or stock trading. Horwitz was a biotech investor and Koppelman is an author who worked at the speechwriting and communications firm Fenway Strategies. Both have family ties to the media business: Horwitz is the son of Pulitzer Prize-winning journalist Tony Horwitz and Pulitzer Prize-winning writer Geraldine Brooks, while Koppelman is the son of Billions co-creator Brian Koppelman and writer Amy Koppelman.
The pair has enlisted several journalism industry veterans as advisors, including former Wall Street Journal editor Matt Murray, ProPublica founder Paul Steiger and Bethany McLean, the investigative journalist who first published concerns about the accounting of Enron.
They recruited three full-time reporters and a group of overseas freelancers who wrote for major news outlets, including the FT and Reuters, in places such as Brazil, Mongolia and Namibia. There is only one full-time trader on the hedge fund side, Courtney Dunlevie, formerly of Commonstock and Morgan Stanley.
Running the newsroom this year will cost about $5 million, Koppelman and Horwitz said, and $10 million in seed funding raised last year would sustain operations through the end of next year. The hedge fund arm will charge investors a traditional 2% management fee and a 20% performance fee and will effectively pay Hunterbrook Media for its research, funding the venture.
The plan calls for Hunterbrook Media to be isolated from Hunterbrook Capital, differentiating it from other investment firms such as Hindenburg Research and Muddy Waters that investigate and take financial positions in companies.
Hunterbrook Media also plans to publish stories on which it takes no financial position, but it is unclear whether it will publish stories that could harm the fund’s active trading positions.
The venture launches during a challenging time for the news business, following layoffs at startups like BuzzFeed, Business Insider and Vice, which were once touted as the future of news media, as well as legacy publications such as the Los Angeles Times and Sports Illustrated.
Hunterbrook’s strategy is fraught with compliance risks, and journalism experts have warned of potential conflicts of interest.
The exchange of material nonpublic information, which journalists regularly uncover, could constitute securities fraud. To avoid this, the group has assigned its general counsel, former U.S. Securities and Exchange Commission lawyer Fitzann Reid, to decide whether an article from Hunterbrook’s news side can be shared with its hedge fund.
Horwitz did not disclose the identities of the limited partners who provided the $100 million in financing, but said most came from institutional investors, as well as some family offices and individuals.
The FT reported in October that seed investors in Hunterbrook included Laurene Powell Jobs’ Emerson Collective, General Catalyst co-founder David Fialkow, Avenue Capital co-founder Marc Lasry and Outside the Box Investments, of which Murray is also consultant.