December 17, 2018

Hedge Fund Startup Is Riding the Social Media Wave

An iPhone screen with social media icons

One hedge fund manager is investing solely in social media.

Institutional Investors should have known better than to invest in Facebook’s IPO. Despite the stock’s comeback since its poor start, institutional investments own only 19% of the shares outstanding (vs. 67% for Apple). Internet companies are dominating the news and one hedge fund startup is riding the social media wave. Tom Wyman has years of experience in equity research, specifically internet companies. But is social media a different animal?

Amherst College’s James Liu recently wrote an article about the alum in the school paper, The Amherst Student.

Tom Wyman is the founder of Internet Capital Management — the first Internet and social media hedge fund. After matriculating at Harvard Business School, Wyman would go on to work for a myriad of investment firms, gradually developing a strong focus on technology and the Internet. As a Senior Publishing Equity Research Analyst at JP Morgan, he wrote an investment thesis about brand building and the Internet. While a Managing Director of the Private Shares Group at Wedbush Securities, he produced research on social media companies such as Facebook and Twitter. In the last decade, Wyman invested in numerous Internet companies while working for Husic Capital Management, San Francisco Capital Management and Lamoreaux Capital Management, where he served as a Portfolio Manager.

In March 2012, Wyman founded Internet Capital Management, the first investment firm to focus exclusively on companies leading new sectors of the mobile Internet industry. “The next megatrend is cloud computing … as internet usage migrates from the personal computer and the enterprise to smartphones, tablets and the cloud,” Wyman said. “The number of Internet users will double in the next three years.”

Much of this growth will be driven by the global economy, as developing countries bypass installing traditional telephones and put in 3G and 4G phones, which are both Internet enabled. Moreover, in contrast to the monolithic dot-com bubble of the 1990s, mobile Internet is multi-faceted and encompasses many potential areas of growth and innovation, including mobile devices, cloud infrastructure and software, mobile applications and mobile payments. These categories are growing at a rate of 20 to 50 percent a year, three to four times faster than any other sector.

Despite the tremendous potential of mobile Internet, there are few reliable products for retail or institutional investors. “There are no Internet hedge funds and only two actively managed Internet mutual funds in existence today,” Wyman said.

One of Internet Capital Management’s funds, the Global Internet Fund, hopes to capitalize on growth in the mobile Internet industry. The Global Internet Fund is a long/short equity hedge fund. Unlike the two pre-existing mutual funds, which are both long only, the Global Internet Fund invests in public companies that are leading new sectors with proven ability to grow and shorts securities where valuations are high relative to challenging fundamentals. The portfolio will consist of 20 to 40 long positions and 10 to 30 short positions, with a net exposure of 30 to 50 percent.

Currently, there are 225 publicly traded companies in the mobile Internet sector, and an increasing number of mobile Internet companies will become public. For example, Workday Inc., one of the first cloud-based software providers to go public, launched its initial public offering in October 2012 and has since seen its share value increase by 80 percent. With prudence, foresight and efficiency, Wyman envisions creating a hedge fund several billion dollars in size.

Despite the relatively stale name, Internet Capital Management has the advantage of being the first in a niche. A successful track record and good marketing (not a simple concept in hedge funds) can contribute to Wyman’s achieving higher assets under management (AUM). With the national mood seeming to be one of increased oversight, investors may take a “show me first” attitude. Despite that a hedge fund startup is riding the social media wave, it may be the right wave to be on.

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