On Technology

Could Google get into fund management?

With so much data, the search giant could theoretically run a successful hedge fund

Aug 7, 2019 @ 2:00 pm

By Ryan W. Neal

Silicon Valley has not been coy about its plans for Wall Street.

Uber is planning a New York City office to develop financial technology products, Amazon and Apple are getting into the credit business, and Microsoft is partnering with BlackRock on retirement.

(More: Apple wades deeper into financial services territory)

One name remains conspicuously quiet on the fintech front: Google (or its parent company Alphabet). Outside of Google Wallet, the search engine giant hasn't made nearly the same kind of splashy moves into the financial sector as its competitors.

But if the future of financial services is data, its hard to imagine who can rival Google. It's hard to pin down exact numbers, but some estimate Google controls 92% of all web searches and processed about 5.8 billion searches per day in 2018. Merriam-Webster even added the company name into the dictionary as a verb for obtaining information on the internet.

The question is, what could the company do with this data if it wanted to enter the financial services world? What if instead payments or retirement or financial advice, Google used its comprehensive collection of internet searches to manage funds?

As FPPad founder and CEO Bill Winterberg suggested on Twitter, Alphabet could theoretically run the world's most profitable hedge fund by just trading in opposition to its own search trends.

Search trends is already one of the most easily accessible types of alternative data fund managers are using, according to a report by Greenwich Associates. About 38% of investment management executives at institutional asset managers, hedge funds and proprietary trading firms reported using search trends as a data set.

So what if Google cut out the middle man and launched its own fund? The idea might not be so far-fetched.

(More: What recent Google and Salesforce acquisitions mean for the future of advice)

As it turns out, Google's own founders have considered the idea. Back in 2010, Business Insider reported the company was looking to hire bond traders and analysts. And in the book "Googled: The End of the World As We Know It," author Ken Auletta wrote that Google co-founder Sergey Brin suggested starting a hedge fund.

The idea was reportedly shot down by then-CEO Eric Schmidt, who said "Sergey, among your many ideas, this is the worst" because of the legal and regulatory complications it would bring.

Indeed, the regulatory issues could be far too much to surmount. Sure, search data is public information, but Google also sits on an unfathomable amount of private information, said Scott Smith, Cerulli Associates director of advice relationships.

"Just for one analyst to get a little too aggressive, that's all it takes to undermine their entire business model," Mr. Smith said.

(More: Top financial terms consumers are Googling)

But the idea could work in theory, said Michael Schrage, an MIT Center for Digital Business research fellow. Writing in the Harvard Business Review, Mr. Schrage suggested a Google-run hedge fund could give anyone on Wall Street a run for their money. After all, the company already uses its data and analytics engine to predict economic futures.

"Yes, this exercise will surface all manner of ethical — and possibly legal — conflicts and risks," Mr. Schrage said. "But those are exactly the kinds of values conversations (privacy, exclusivity, fairness, and intellectual property) innovative organizations need to have."

Even so, Mr. Smith is skeptical as to how well a Google fund could really work. Even ignoring the legal issues, an investment fund would cannibalize its existing business of trying to get as many people as possible using Google products for advertising. If that data also is informing investment decisions, it could create business conflicts with just about everyone, Mr. Smith said.

Google would have to put its high-margin business at risk in order to move into the diminishing margin world of asset management.

Further, if Google could only use public data to guide investment decisions, how much better could its funds perform than anyone else who has access to the same information?

"If they really want to make a play, then by all means," Mr. Smith said.

He remains skeptical Google has any intentions of entering finance. "I think Google would rather go to the moon than deal with financial plans," he said.

Google is nothing, though, if not innovative. As its competitors consider money management, investing and retirement, perhaps Google turning towards fund management could be its ultimate moon shot.

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