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'Twitter' Hedge Fund Delays Launch

Tuesday, 25 Jan 2011 | 2:49 PM ET

Hedge fund Derwent Capital Markets says it has delayed the launch of its closely-watched "Twitter" fund due partly to higher-than-anticipated interest from clients—largely the result of international media attention the small eight-person boutique investment firm has received in recent weeks.

Twitter
Loic Venance | AFP | Getty Images
Twitter

Derwent originally planned a February launch date for its Absolute Return Fund, which will base its holdings and strategy on data mined from Twitter, but it is now targeting a more realistic April 1 timetable. Between now and then, the fund will make changes to its custodial operations and look to engage in additional fundraising.

Paul Hawtin, Derwent’s founder and fund manager, says he already has firm commitments of 25 million pounds, but in recent weeks, client interest has grown to 40 million pounds—a figure Hawtin says could go higher before the fund’s launch.

Hawtin says he is also in talks with Goldman Sachs and other banks for what he describes as “various investment and advisory services.” He declined comment when asked if those banks had indicated interest to seed additional capital into the fund.

Derwent Capital has gained international attention from its plan to launch a hedge fund whose strategy and holdings are determined by the “mood” of the market—aggregated using millions and millions of daily tweets from the website Twitter.com.

The "Twitter" Hedge Fund
Paul Hawtin of Derwent Capital Markets tells CNBC how his new hedge fund will use Twitter to help clients beat the market.

The trading algorithm the team has developed is based on the research of Indiana Professor Johan Bollen who published an academic paper last year titled, “Twitter mood predicts the stock market.” The paper caught the attention of Hawtin, who has since hired Professor Bollen to help oversee his fund’s operations.

“It’s not just a correlation, but there was a lag of 2-3 days between a change in sentiment in Twitter users and the change in the direction of the Dow Jones Industrials Average index,” Hawtin told CNBC’s “The Strategy Session” on Tuesday.

Hawtin says he is confident that he’ll be able to predict those swings in the Dow with an 87 percent accuracy. “It doesn’t take a rocket scientist to figure out how valuable that is to us,” he said.

The fund’s holdings will center on highly liquid investments—like indices, near-dated futures on Dow Industrials, the S&P 500, London’s FTSE, in addition to a selective number of the largest and the most liquid stocks on the U.S. and the U.K exchanges.

Hawtin added that his team is also looking at mining data from other social networking sites including Facebook and Digg as it looks to further develop and expand its strategy.

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