6 ms·

Why doesn’t Google have a hedge fund?

42 points by ryanwaggoner 16y ago

deleted 16y ago
[deleted]
T_S_ 16y ago
Google can buy companies, much like Berkshire Hathaway, and does, so they don't really need to be a hedge fund for that purpose. If you think they want to trade securities and futures, they wouldn't need to be a hedge fund to do that either. A fund is a legal/tax structure and little else. All the chatter in this thread about insider trading is a red herring. They could gather information, publish and trade on it without taking much legal risk. The reputation/headline risk is probably a bigger barrier. These types of barriers are set by fashion so it is conceivable that they might do it some day. It might not be a bad thing either, since our financial accounting system is such a poor way of disseminating information.
Dramatize 16y ago
Interesting point. I think I would trust my money with Google/Amazon rather than the other managed funds.
kqr2 16y ago
Supposedly Google already has an internal "hedge" fund to manage its cash reserves. http://www.fool.com/investing/general/2010/06/07/google-the-hedge-fund.aspx http://www.fool.com/investing/general/2010/06/07/google-the-... Also: Sergey Brin, Google’s co-founder, once said the company should start a hedge fund because it had so much information. But Eric Schmidt, Google’s chief executive, reportedly responded, “Sergey, among your many ideas, this is the worst,” since the company would face serious legal problems in starting a hedge fund. http://dealbook.blogs.nytimes.com/2010/03/22/google-is-now-searching-for-bond-traders/ http://dealbook.blogs.nytimes.com/2010/03/22/google-is-now-s...
- bfung 16y ago
  What kind of legal problems would be too serious to stop Google from doing it? They already do it to some extent...
  - stephenjudkins 16y ago
    The difference is that they're only managing their own money. The implication of "running a hedge fund" is that you're managing outside investors' money. I imagine that with that comes an onerous set of regulations.
    - swombat 16y ago
      Considering their "own money" is more than most hedge funds ever get to manage, that's probably enough to return some very good profits...
- ctkrohn 16y ago
  Calling it a "hedge fund" is a bit of a stretch, but they do have a treasury department for managing their cash. They post job listings periodically.
  - arethuza 16y ago
    Just about every sufficiently large company will have a treasury department to act as an "internal bank" - managing the actual cash of a company. Some of the things they do are quite cool - I thought zero balance sweeping was a particularly neat trick when I heard about it.
malloreon 16y ago
They definitely have a team who manages their cash reserves, I'm sure they do some interesting analysis before choosing investments.
aresant 16y ago
Google's flu trends project illustrates the power of this idea. Google pegs down regional flu trends faster than the CDC, who has the advantage of pulling data from thousands of regional hospitals, etc. Simple idea, great illustration in original paper: http://www.google.org/about/flutrends/manuscript.pdf http://www.google.org/about/flutrends/manuscript.pdf Video version: http://www.google.org/flutrends/about/how.html http://www.google.org/flutrends/about/how.html
- kvs 16y ago
  One of the reasons CDC can't predict as quickly as Google can is because it takes weeks for data "from thousands of regional hospitals, etc." to get to CDC.
  - mahmud 16y ago
    Not to mention that there are more top-notch data engineers in a Google cafeteria at any given moment, than there are in the entire CDC payroll.
  - iamelgringo 16y ago
    Not only that, but hospitals have to wait for confirmed laboratory test results before they report then to the CDC. That kind of reporting is certainly not done in real time.
Towle_ 16y ago
Google is its own hedge fund. At this point, I've seen far too many disruptive, innovative startups get acquired by Google, only to be quietly drowned into the abyss. Their game is keeping everything as directly linked to search as possible.
- korch 16y ago
  Is this pattern going to become one of Google's weakest links? Analogous to the way Microsoft ignored the web until it was too late, and that gave Google a foot in the door. So the formula to overtaking Google is blindingly simple: change the game to make everything as unrelated to search as possible. One could say Facebook is doing the exact same thing, but instead the mechanism hold a lock on is social, not search.
  - metamemetics 16y ago
    >the formula to overtaking Google is blindingly simple: change the game to make everything as unrelated to search as possible Search is the act of finding info on which to verb. Facebook and Google Search are not strongly substitutable goods. To eliminate google and bypass web search, you are looking at integrating better information retrieval services directly into the operating system. Google has already predicted this though. Chrome OS will be already be out and have established market position by the time everyone else realizes they need to focus on this. Eliminating the OS interface and the web browser interface binary distinction will be key. Google is so far ahead of the game that they're dealing with robot cars, if we want to find a chink in the armor we need to think 5 steps ahead.
kevinpet 16y ago
Trading on non-public information is generally illegal in the US. Some of this may squeek by, but the majority of these suggestions (like Visa/Mastercard knowing actual sales numbers) would certainly be illegal.
- korch 16y ago
  I haven't (yet) researched this topic very much, but if it is only legal to trade on public information, then how are all of the private investment banks on Wall St. legally allowed to develop astronomically sophisticated and proprietary, automated securities trading platforms using data from private commercial sources?
  - starpilot 16y ago
    Proprietary trading does not necessarily involve insider information. "Insider" refers to those privy to exclusive data about a public corporation that have not been publicly released. Insider trading laws do not preclude trading on independently drawn ideas, and do not entail publicizing one's own reasons for deciding to invest, because those ideas do not originate within the company being considered for investment. An investment bank may trade away with whatever methods they have in-house, as long as they have not gained via information about the company that is not publicly available. “Private commercial sources” is vague, but if you mean paid databases like LexisNexis, Hoovers, or even 10kwizard, those just consolidate already public information in a more convenient formats. They don’t draw from insiders. Of course, it's an open secret that insider trading is rampant in all major stock markets. You can’t police every pair of CEO golf buddies. I can’t provide a cite, but a study done a few years ago confirmed major movements shortly before (hours) major announcements with the vast majority of stocks in the Canadian exchanges. I’d expect the problem to be greater in the US markets.
    - qq66 16y ago
      What if you surveyed 100 Fortune 500 CIOs to figure out how much they're planning on spending with Oracle next year, and used that to trade Oracle stock? Is that illegal? It's certainly not coming from an Oracle "insider." That's what Google would be doing, but instead of 100 CIOs, they'd be aggregating data from millions of ordinary people.
latch 16y ago
I do remember an article, probably more than 5 years old now (which explains why I'm having a hard time finding it), detailing how Microsoft managed its massive amount of money. From what I remember, they were using proprietary systems (in the widest sense possible) to achieve significantly better return than average. I seem to recall that the industry average might have been 6% while they were hitting 10-11%.
deleted 16y ago
[deleted]
- d2viant 16y ago
  Legal issues aside (these can be resolved), if that's really true then Google's shareholders should consider replacing the board, as they are passing up a tremendous opportunity.
  - noibl 16y ago
    Not a direct response -- I wanted to reply to the parent which was just deleted. It mentioned 'legal and ethical reasons'. An obvious legal problem would seem to be demonstrating the segregation of public data from private data under Google's management. Wouldn't they need to submit to some kind of external auditing to prove that only public data was being used for financial analysis? Not going to happen. I don't think there's a real ethical problem so much as a PR risk of the kind that Google already has to deal with: people are suspicious that their private Google-hosted data is being scrutinised for dubious reasons.
tnorthcutt 16y ago
Not only do these search companies collect and manage more data than anyone outside of the Federal government I would be surprised if they don't collect and manage more data than the federal government.
joe_the_user 16y ago
Consider: A phone company has a legal obligation to keep conversations private. But suppose one didn't. If ATT started a hedge fund to leverage conversations they skimmed from all of their customers, ATT would not last long as a phone company. Google has gotten as fair as it has by being seen as "fair dealer" regardless of its legal obligations. They're smart enough to want to continue that way.
lacker 16y ago
I asked this question when I worked at Google, and the answer was that our legal department thought it was a bad idea for two reasons. Reason one is insider trading. The information Google has is aggregated from many sources, including insiders. If Google trades on that information they risk violating insider trading laws. Reason two is privacy. The laws here vary a lot from country to country and Europe is generally the strictest. But the summary is that there are privacy laws which say it is okay to use some types of personal information as long as it is only used to improve a service being provided. Trading wouldn't fall into the category of allowable use.
- crsmith 16y ago
  What insider trading information does Google aggregate?
  - jlees 16y ago
    Google handles email for many companies and even personal email accounts for people in a variety of jobs. Chance of some of that being insider information is pretty high IMO. Google also has a corporate search appliance that may be used in publicly traded companies too (I don't have a list of customers on hand).
tapp 16y ago
"Google's Latest Launch: Its Own Trading Floor" http://www.businessweek.com/magazine/content/10_23/b4181033582670.htm http://www.businessweek.com/magazine/content/10_23/b41810335...
jfi 16y ago
I think there is too much risk with a traditional hedge fund model so Goog is going the route of seed-investor, angel investor, VC - bigger risks, bigger rewards ... less muddying of the legal waters (potentially).
iamelgringo 16y ago
I've gotten a tiny taste of what would be possible since soft-launching Newsley's search engine for financial news [1]. We're only getting 400-500 page views a day, but being able to see what people are researching and looking for in financial news has been quite interesting. Today, for instance, we saw a surge of interest in people looking for news regarding "Geotech Boyles Bros" one of the companies involved in the Chilean mine rescue.[2] I'm looking forward to seeing what other information people start researching. We're going to have to look at our privacy policy very closely. I really admire what Gabriel has done at DDG [3] and if we keep growing like we have been, we hope to do something similar. It's just the right thing to do. [1] occasionally working, case sensitive alpha version here: http://Newsley.com/search http://Newsley.com/search [2] http://newsley.com/k/Company/geotec-boyles-bros/70053/ http://newsley.com/k/Company/geotec-boyles-bros/70053/ [3] http://duckduckgo.com/privacy.html http://duckduckgo.com/privacy.html
Janteh 16y ago
Google does have a banking license in The Netherlands, I was looking into this yesterday, but there is not much information available, I guess they are not using it. I still wonder why they got it though.

42 points by ryanwaggoner 16y ago

deleted 16y ago

[deleted]

T_S_ 16y ago

Google can buy companies, much like Berkshire Hathaway, and does, so they don't really need to be a hedge fund for that purpose. If you think they want to trade securities and futures, they wouldn't need to be a hedge fund to do that either. A fund is a legal/tax structure and little else. All the chatter in this thread about insider trading is a red herring. They could gather information, publish and trade on it without taking much legal risk. The reputation/headline risk is probably a bigger barrier. These types of barriers are set by fashion so it is conceivable that they might do it some day. It might not be a bad thing either, since our financial accounting system is such a poor way of disseminating information.

Dramatize 16y ago

Interesting point. I think I would trust my money with Google/Amazon rather than the other managed funds.

kqr2 16y ago

Supposedly Google already has an internal "hedge" fund to manage its cash reserves. http://www.fool.com/investing/general/2010/06/07/google-the-hedge-fund.aspx http://www.fool.com/investing/general/2010/06/07/google-the-... Also: Sergey Brin, Google’s co-founder, once said the company should start a hedge fund because it had so much information. But Eric Schmidt, Google’s chief executive, reportedly responded, “Sergey, among your many ideas, this is the worst,” since the company would face serious legal problems in starting a hedge fund. http://dealbook.blogs.nytimes.com/2010/03/22/google-is-now-searching-for-bond-traders/ http://dealbook.blogs.nytimes.com/2010/03/22/google-is-now-s...

bfung 16y ago
What kind of legal problems would be too serious to stop Google from doing it? They already do it to some extent...
- stephenjudkins 16y ago
  The difference is that they're only managing their own money. The implication of "running a hedge fund" is that you're managing outside investors' money. I imagine that with that comes an onerous set of regulations.
  - swombat 16y ago
    Considering their "own money" is more than most hedge funds ever get to manage, that's probably enough to return some very good profits...
ctkrohn 16y ago
Calling it a "hedge fund" is a bit of a stretch, but they do have a treasury department for managing their cash. They post job listings periodically.
- arethuza 16y ago
  Just about every sufficiently large company will have a treasury department to act as an "internal bank" - managing the actual cash of a company. Some of the things they do are quite cool - I thought zero balance sweeping was a particularly neat trick when I heard about it.

malloreon 16y ago

They definitely have a team who manages their cash reserves, I'm sure they do some interesting analysis before choosing investments.

aresant 16y ago

Google's flu trends project illustrates the power of this idea. Google pegs down regional flu trends faster than the CDC, who has the advantage of pulling data from thousands of regional hospitals, etc. Simple idea, great illustration in original paper: http://www.google.org/about/flutrends/manuscript.pdf http://www.google.org/about/flutrends/manuscript.pdf Video version: http://www.google.org/flutrends/about/how.html http://www.google.org/flutrends/about/how.html

kvs 16y ago
One of the reasons CDC can't predict as quickly as Google can is because it takes weeks for data "from thousands of regional hospitals, etc." to get to CDC.
- mahmud 16y ago
  Not to mention that there are more top-notch data engineers in a Google cafeteria at any given moment, than there are in the entire CDC payroll.
- iamelgringo 16y ago
  Not only that, but hospitals have to wait for confirmed laboratory test results before they report then to the CDC. That kind of reporting is certainly not done in real time.

Towle_ 16y ago

Google is its own hedge fund. At this point, I've seen far too many disruptive, innovative startups get acquired by Google, only to be quietly drowned into the abyss. Their game is keeping everything as directly linked to search as possible.

korch 16y ago
Is this pattern going to become one of Google's weakest links? Analogous to the way Microsoft ignored the web until it was too late, and that gave Google a foot in the door. So the formula to overtaking Google is blindingly simple: change the game to make everything as unrelated to search as possible. One could say Facebook is doing the exact same thing, but instead the mechanism hold a lock on is social, not search.
- metamemetics 16y ago
  >the formula to overtaking Google is blindingly simple: change the game to make everything as unrelated to search as possible Search is the act of finding info on which to verb. Facebook and Google Search are not strongly substitutable goods. To eliminate google and bypass web search, you are looking at integrating better information retrieval services directly into the operating system. Google has already predicted this though. Chrome OS will be already be out and have established market position by the time everyone else realizes they need to focus on this. Eliminating the OS interface and the web browser interface binary distinction will be key. Google is so far ahead of the game that they're dealing with robot cars, if we want to find a chink in the armor we need to think 5 steps ahead.

kevinpet 16y ago

Trading on non-public information is generally illegal in the US. Some of this may squeek by, but the majority of these suggestions (like Visa/Mastercard knowing actual sales numbers) would certainly be illegal.

korch 16y ago
I haven't (yet) researched this topic very much, but if it is only legal to trade on public information, then how are all of the private investment banks on Wall St. legally allowed to develop astronomically sophisticated and proprietary, automated securities trading platforms using data from private commercial sources?
- starpilot 16y ago
  Proprietary trading does not necessarily involve insider information. "Insider" refers to those privy to exclusive data about a public corporation that have not been publicly released. Insider trading laws do not preclude trading on independently drawn ideas, and do not entail publicizing one's own reasons for deciding to invest, because those ideas do not originate within the company being considered for investment. An investment bank may trade away with whatever methods they have in-house, as long as they have not gained via information about the company that is not publicly available. “Private commercial sources” is vague, but if you mean paid databases like LexisNexis, Hoovers, or even 10kwizard, those just consolidate already public information in a more convenient formats. They don’t draw from insiders. Of course, it's an open secret that insider trading is rampant in all major stock markets. You can’t police every pair of CEO golf buddies. I can’t provide a cite, but a study done a few years ago confirmed major movements shortly before (hours) major announcements with the vast majority of stocks in the Canadian exchanges. I’d expect the problem to be greater in the US markets.
  - qq66 16y ago
    What if you surveyed 100 Fortune 500 CIOs to figure out how much they're planning on spending with Oracle next year, and used that to trade Oracle stock? Is that illegal? It's certainly not coming from an Oracle "insider." That's what Google would be doing, but instead of 100 CIOs, they'd be aggregating data from millions of ordinary people.

latch 16y ago

I do remember an article, probably more than 5 years old now (which explains why I'm having a hard time finding it), detailing how Microsoft managed its massive amount of money. From what I remember, they were using proprietary systems (in the widest sense possible) to achieve significantly better return than average. I seem to recall that the industry average might have been 6% while they were hitting 10-11%.

deleted 16y ago

[deleted]

d2viant 16y ago
Legal issues aside (these can be resolved), if that's really true then Google's shareholders should consider replacing the board, as they are passing up a tremendous opportunity.
- noibl 16y ago
  Not a direct response -- I wanted to reply to the parent which was just deleted. It mentioned 'legal and ethical reasons'. An obvious legal problem would seem to be demonstrating the segregation of public data from private data under Google's management. Wouldn't they need to submit to some kind of external auditing to prove that only public data was being used for financial analysis? Not going to happen. I don't think there's a real ethical problem so much as a PR risk of the kind that Google already has to deal with: people are suspicious that their private Google-hosted data is being scrutinised for dubious reasons.

tnorthcutt 16y ago

Not only do these search companies collect and manage more data than anyone outside of the Federal government I would be surprised if they don't collect and manage more data than the federal government.

joe_the_user 16y ago

Consider: A phone company has a legal obligation to keep conversations private. But suppose one didn't. If ATT started a hedge fund to leverage conversations they skimmed from all of their customers, ATT would not last long as a phone company. Google has gotten as fair as it has by being seen as "fair dealer" regardless of its legal obligations. They're smart enough to want to continue that way.

lacker 16y ago

I asked this question when I worked at Google, and the answer was that our legal department thought it was a bad idea for two reasons. Reason one is insider trading. The information Google has is aggregated from many sources, including insiders. If Google trades on that information they risk violating insider trading laws. Reason two is privacy. The laws here vary a lot from country to country and Europe is generally the strictest. But the summary is that there are privacy laws which say it is okay to use some types of personal information as long as it is only used to improve a service being provided. Trading wouldn't fall into the category of allowable use.

crsmith 16y ago
What insider trading information does Google aggregate?
- jlees 16y ago
  Google handles email for many companies and even personal email accounts for people in a variety of jobs. Chance of some of that being insider information is pretty high IMO. Google also has a corporate search appliance that may be used in publicly traded companies too (I don't have a list of customers on hand).

tapp 16y ago

"Google's Latest Launch: Its Own Trading Floor" http://www.businessweek.com/magazine/content/10_23/b4181033582670.htm http://www.businessweek.com/magazine/content/10_23/b41810335...

jfi 16y ago

I think there is too much risk with a traditional hedge fund model so Goog is going the route of seed-investor, angel investor, VC - bigger risks, bigger rewards ... less muddying of the legal waters (potentially).

iamelgringo 16y ago

I've gotten a tiny taste of what would be possible since soft-launching Newsley's search engine for financial news [1]. We're only getting 400-500 page views a day, but being able to see what people are researching and looking for in financial news has been quite interesting. Today, for instance, we saw a surge of interest in people looking for news regarding "Geotech Boyles Bros" one of the companies involved in the Chilean mine rescue.[2] I'm looking forward to seeing what other information people start researching. We're going to have to look at our privacy policy very closely. I really admire what Gabriel has done at DDG [3] and if we keep growing like we have been, we hope to do something similar. It's just the right thing to do. [1] occasionally working, case sensitive alpha version here: http://Newsley.com/search http://Newsley.com/search [2] http://newsley.com/k/Company/geotec-boyles-bros/70053/ http://newsley.com/k/Company/geotec-boyles-bros/70053/ [3] http://duckduckgo.com/privacy.html http://duckduckgo.com/privacy.html

Janteh 16y ago

Google does have a banking license in The Netherlands, I was looking into this yesterday, but there is not much information available, I guess they are not using it. I still wonder why they got it though.