The uncomfortable marriage of hedge funds and journalists

Is it ethical to invest in the downfall of your investigative target?

We love seeing journalists making money in this wretched industry, but one emerging funding model is… hard to come to grips with.

One hand holding a stack of money enters from the left of the frame and one hand holding a pen enters from the right of the frame, with both against a purple background filled with lightning.

Last week, hedge fund Hunterbrook Capital launched a news site called Hunterbrook Media. The news arm’s debut feature was a thoroughly reported piece investigating United Wholesale Mortgage, America’s largest mortgage lender.

Truth to power. Accountability journalism. Great stuff — when taken at face value.

But here’s how Hunterbrook Media pays for that reportage: Before anyone hit publish, the UWM article was presented to its affiliated hedge fund arm, which shorted UWM and invested in top rival Rocket Mortgage.

Now that feels a bit more unsettling.

Interesting, though

… Yeah, very much so. NiemanLab called Hunterbrook “one of the most unusual experiments in media ethics,” adding it was “rather bonkers” from a journalistic perspective.

Hunterbrook isn’t the only one short-selling their investigative targets — Hindenburg Research notably employs a similar model, and Mark Cuban’s Sharesleuth has been playing in this murky water since 2006.

But those other operations are more positioned as short-selling first, journalism second. That isn’t the case with Hunterbrook, which presents itself under a banner of independent journalism:

  • It self-presents as a possible solution to media’s crumbling model.
  • It trumpets its advisory board’s bona fides, trading off the credibility of The Wall Street Journal, ProPublica, and The New York Times.

That’s a risky road to take…

… It calls more attention to the org’s journalistic objectivity — and how difficult that must be to maintain when your livelihood is based on damaging the business you’re reporting on.

It also makes Hunterbrook the most intriguing hedge fund-reporter dalliance to date, as it presents a fascinating question:

  • Can two industries combine forces to solve each other’s challenges — for journalists, anything resembling a stable business model; for hedge funds, reliable and actionable intel on its positions — without anyone selling out?

About that other question you may have…

Is all of this legal? They walk a thin line, but if Hunterbrook holds to its policies and never makes investments based on nonpublic insider information, then yes, it’s legal.

  • While Hunterbrook is plainly aiming to coax a windfall at UWM’s expense, it has ultimately taken a swing at a public company with publicly available information.

So, it isn’t shady — Hunterbrook is admirably above board in describing its modes and motives — it just, by nature, feels shady.

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