
Why doesn’t Google have a hedge fund? - ryanwaggoner
http://ryanwaggoner.com/2010/10/why-doesnt-google-have-a-hedge-fund/
======
kqr2
Supposedly Google already has an internal "hedge" fund to manage its cash
reserves.

[http://www.fool.com/investing/general/2010/06/07/google-
the-...](http://www.fool.com/investing/general/2010/06/07/google-the-hedge-
fund.aspx)

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-s...](http://dealbook.blogs.nytimes.com/2010/03/22/google-is-now-
searching-for-bond-traders/)

~~~
bfung
What kind of legal problems would be too serious to stop Google from doing it?
They already do it to some extent...

~~~
stephenjudkins
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
Considering their "own money" is more than most hedge funds ever get to
manage, that's probably enough to return some very good profits...

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lacker
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
What insider trading information does Google aggregate?

~~~
jlees
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).

------
kevinpet
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.

~~~
damoncali
Companies do it all the time. They buy and sell their own stock, based on
information that never makes it into a financial statement, for example.

Trading another company's stock based on secret information is also very much
legal. Mark Cuban practically made a sport out of it with
<http://sharesluth.com>

Now if there was major market collusion by industry giants to combine data and
do horrible things, you're getting out of my knowledge range, but there's
nothing generally illegal about trading on info nobody else knows about.

~~~
count
I believe the limitation on trading on secret information is limited to
'privileged' information, not 'secret'. If you're entrusted with the
information by the company (as an employee, officer, consultant, etc.), you
are not allowed to use it.

If you discover it for whatever reason, and have no actual relation to the
company, I don't think it counts - that's how Mark Cuban gets by with Share
Sleuth.

That said, IANAL, so don't take that as legal advice :)

------
tnorthcutt
_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.

------
aresant
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>

Video version:

<http://www.google.org/flutrends/about/how.html>

~~~
kvs
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.

~~~
iamelgringo
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_
_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
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
> _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.

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

------
latch
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%.

------
iamelgringo
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>

[2] <http://newsley.com/k/Company/geotec-boyles-bros/70053/>

[3] <http://duckduckgo.com/privacy.html>

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joe_the_user
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.

------
T_S_
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.

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tapp
"Google's Latest Launch: Its Own Trading Floor"

[http://www.businessweek.com/magazine/content/10_23/b41810335...](http://www.businessweek.com/magazine/content/10_23/b4181033582670.htm)

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jfi
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).

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Janteh
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.

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

