Twitter Hedge Fund Goes Silent

May 29 2012 | 9:06am ET

The world's first Twitter-based hedge fund has tweeted its last—and quietly, at that.

Derwent Capital Markets shut its much-ballyhooed $100 million hedge fund after just one month last year. The London-based firm said its proprietary trading model analysed the use of "calm" words on the social networking system to predict movements in the Dow Jones Industrial Average, with 87.6% accuracy.

But in spite of the hype that surrounded the fund's launch, and its 1.85% return in its only month last summer, one of Derwent's largest investors suggested, perhaps appropriately, that the social network-based trading system would be appropriate for crowd sourcing. So Derwent has changed gears, deciding to offer its trading signals to day traders.

"The information we are using is from the mass market anyway," CEO Paul Hawtin told the Financial Times. "In return, we're saying to these people, 'You can use these signals yourself.'"

The new system will overlay Derwent's Twitter-based measurements on IG Group's spread trading platform. Hawtin said he hopes to get between 3,000 and 5,000 customers, with Derwent paid a portion of IG's fees.

"As a result" of the investor's suggestion, "we made the strategic decision to close the Derwent Absolute Return Fund and invest directly in developing an online trading platform," Hawtin said.

"The problem with hedge funds is that it is a very difficult product to market and there's a very small clientele who can even know about it, let alone use it."

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