When Derwent Capital Markets (DCM), a hedge fund that analysed Twitter to try and figure out where to invest, was launched in July 2011 there was a mix of intrigue and scepticism about its viability. It closed after one month, leading many to write it off as a gimmick gone wrong.
For its founder Paul Hawtin, however, it was simply a model that needed tweaking. "The Twitter Fund was closed shortly after launch because investors around the world became risk averse after the U.S. lost its AAA credit rating in August 2011 (one month after we launched). As a result we couldn't convert the $25m+ investor funds that had initially been pledge to the fund," he tells us.
Now, however, he's launching the Twitter fund 2.0, or Cayman Atlantic, and Hawtin is convinced that it has a better shelf-life this time around: "Cayman Atlantic is offering Managed Trading Accounts (MTAs) as opposed to a collective investment scheme or fund like Derwent did. This means there are no minimum capital requirements (like a fund has) to make the business commercially viable."
Social media, he says, is still "rich with golden trading opportunities" as long as you're able to "filter through the noise and rubbish to find the hidden alpha". Hawtin is basing this mantra on academic theory that claims Twitter can predict moves in the stock market.
Research by Indiana University published in early 2011 suggested that Twitter sentiment correlates with the movements of the Dow Jones Industrial Average over the next few days with 87% accuracy. This inspired him to launch DCM: "I acted on it before anyone else we've had a first move advantage over the rest. This has helped us to attract the best talent and stay ahead of the curve."
Cayman Atlantic currently has just five staff, but the plan is to expand over the next year when it opens an office in London, said Hawtin. "We are keen to find highly skilled data miners. People who can work with fast changing, enormous data sets and come up with innovative ways to apply filters and derive sentiment," he said.
Hawtin has spent time working as a stockbroker, but believes that the entrepreneur route is the way he will continue to go. "I always remember my father saying 'you'll never make and 'real' money working for someone else'."
"If you really believe in something then you should have a go and put everything you have into it. Never give up and don't be afraid of failure. The most successful entrepreneurs have at some time in their lives suffered major failures and in some cases bankruptcy," he said.