Trading on reporters' scoops

There’s a new business media out there. Sort of. Hunterbrook Media is a US journalistic startup for investigative stories. It is funded by Hunterbrook Capital, a long/short hedge fund that has just raised $100 million, says the Financial Times.

The idea is that the hedge fund will place trades based on the news. The media site went live this week with a story alleging malfeasance by a US company, United Wholesale Mortgages, whose owner also happens to own an NBA team.

The media business’s twitter feed is a non-stop barrage of colorful, meme-like attacks on UWM along with some insight into the data-led research by the journalists. Hunterbrook Capital is shorting UWM’s stock (and going long rivals in the mortgage space).

Is this business journalism, or is it just a fa?ade to justify a new hedge fund? Maybe it’s both. The Hunterbrook people say they have established compliance and other safeguards.

There is a conflict of interest, but there’s also a conflict of interest whenever a media business accepts advertizing or runs awards. The question is how credibly the conflict is managed; Hunterbrook needs time to develop a track record.

Short sellers chasing frauds already publish their research in advance of placing their trades. They grind out a big, sensational report, and wave it in front of reporters at places like Bloomberg and Reuters. They create a media event that is designed to spook the market and drive down the share price of the target companies.

This kind of behavior can get short sellers banned (in places like Korea and China) or made out to be villains (as in the hedge funds shorting GameStop). But where would we be without people willing to do the hard work of uncovering frauds? They need to be compensated for the effort that goes into keeping markets kinda-sorta honest.

What Hunterbrook is doing is simply taking the media part in-house. It’s not that different from a bank or tech company building its own media or content-marketing engine. It’s easy to roll out a media platform.

Hunterbrook Media so far is loud, colorful, and trashy, but focused on one story where it alleges a fraud has been committed. It’s quickly following up as UMC appears to have removed YouTube and other social-media content that were part of Hunterbrook’s case against the company.

Why rely on Bloomberg to do all this follow-up work, when you can assemble your own media platform that will hound a target relentlessly?

The internet-based media business has long been fragmenting. For a time, every media business, big and small, sought to ride the coattails of Facebook and Google traffic: use those algorithms to drive traffic to your news site. But all the ad money went to the platforms, which is why chasing eyeballs hasn’t worked out – and why so many media businesses went bust in the past two years, from Buzzfeed to Sports Illustrated.

Hunterbrook Media doesn’t need to chase eyeballs. It doesn’t need a mass audience. It needs just enough professionals on Wall Street or people who want to day trade this sort of news to pay attention. Its challenge will be twofold: investigating situations that create investment opportunities, but also generating enough related content to maintain audience interest.

Hunterbrook Group will no doubt attract attention as a hedge fund that builds a news team. The money flows from the capital side to the media side. But it could easily go the other way. For example, WorkWeek is a newsletter collective in the US that has launched a venture fund to take advantage of ideas unearthed by its various content people.

Wall Street has always made a ton of money off the back of reporters. Hedge funds and quant shops use algos to track articles and social-media commentary. Brokers use news stories to pitch trade ideas. The first index funds came out of the publishing industry.

Today, the only major cost to journalism is the people. The rest – the publishing, the marketing, the graphics – is free or very cheap. The media business is punishing because most of the content produced has no value; it’s cookie-cutter stuff. The arrival of ChatGPT will just add to the mountain of useless crap online. But if you are doing investigative work, or any kind of original work that’s relevant to your audience, why not turn that into an investment opportunity – for your audience, and for yourself?

This isn’t a solution for the broader issues of media as a public good. The kind of reporting to shine a light on politics and society is not suited to a fund. Hunterbrook can’t replace the New York Times, but it doesn’t need to. It just needs to be accepted as legitimate, so long as it takes its internal governance seriously.

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