Hedge Funds Are Tracking Private Jets to Find the Next Megadeal
Author: Justin Bachman
Source: Bloomberg (https://www.bloomberg.com/news/articles/2019-07-02/hedge-funds-are-tracking-private-jets-to-find-the-next-megadeal)
That hedge funds are always data hungry is not surprising but the new ways they find to satiate their hunger surprises us. Justin Bachman in his article shows how hedge fund managers track private jets to predict the next big M&A in the USA. He gives a recent example of an analyst predicting that Occidental Petroleum Corp. is negotiating deal with Warren Buffett based on company’s aircraft being spotted in Omaha and the prediction turned out to be true.
“In April, a stock research firm told clients that a Gulfstream V owned by Houston-based Occidental Petroleum Corp. had been spotted at an Omaha airport. The immediate speculation was that Occidental executives were negotiating with Buffett’s Berkshire Hathaway Inc. to get financial help in their $38 billion offer for rival Anadarko Petroleum Corp. Two days later, Buffett announced a $10 billion investment in Occidental.”
A 2018 paper from security researchers at the University of Oxford and Switzerland’s federal Science and Technology department, tracked aircraft from three dozen public companies and identified seven instances of mergers-and-acquisitions activity.
With improvement in technology it is becoming even more easy for anyone to track flight movements. Hedge Fund managers agree that tracking of flight cannot be the primary source to figure out next M&A activity but alternative data is always welcomed. And the way things are moving, it seems unlikely that flying will ever be completely private again.
“If you have a meeting with Warren Buffett in Omaha and you want to keep it a secret, consider driving. The airports are being watched. In April, a stock research firm told clients that a Gulfstream V owned by Houston-based Occidental Petroleum Corp. had been spotted at an Omaha airport. The immediate speculation was that Occidental executives were negotiating with Buffett’s Berkshire Hathaway Inc. to get financial help in their $38 billion offer for rival Anadarko Petroleum Corp. Two days later, Buffett announced a $10 billion investment in Occidental.
Where there’s a jet, there’s a data trail, and several “alternative data” firms are keeping tabs on private aircraft for hedge funds and other investors. The data on the Occidental plane came from Quandl Inc., which was acquired by Nasdaq Inc. in December. (Bloomberg LP, which publishes Bloomberg Businessweek, provides clients with reports from another company called JetTrack.) There’s some evidence that aircraft-tracking can be used to get an early read on corporate news. A 2018 paper from security researchers at the University of Oxford and Switzerland’s federal Science and Technology department, tracked aircraft from three dozen public companies and identified seven instances of mergers-and-acquisitions activity. “It probably shouldn’t be your prime source of investing information, but as a feeder, as an alert of something else what might be going on, that’s where this work might be useful,” says Matthew Smith, a researcher at Oxford’s computer science department and one of the authors.
Whether that’s enough to give investors an edge is another question; as alternative data becomes more available, it’s more likely to be rapidly reflected in stock prices. At the same time, some owners of private jets are doing their best to get their flights back into stealth mode. Online aviation trackers that focus on commercial traffic, including FlightAware, allow anyone to see the position of thousands of airborne planes, based on in part a raw data feed provided by the Federal Aviation Administration. What’s not visible are 28,000 private craft, from small, single-engine turboprops to large, intercontinental business jets. An FAA policy lets these owners request that their plane’s identities be blocked from public display.
But the FAA isn’t the only data source. Many planes are equipped with a technology called Automatic Dependent Surveillance–Broadcast (ADS-B), which transmits an aircraft’s transponder code, call sign, model type, position, and airspeed. As of Jan. 1, 2020, the FAA will mandate that any aircraft flying in most U.S.-controlled airspace be equipped with ADS-B. Anyone with the right antennas can pick up ADS-B data and observe virtually all passing air traffic. A co-op called ADS-B Exchange takes information from a network of antennas around the world and makes it freely available. Such information isn’t useful for only hedge funds. Dictator Alert tracks airplanes registered to or owned by authoritarian leaders—mostly in the Middle East and Africa—into and out of Geneva Airport in Switzerland, and posts the information using a Twitter bot. The service was begun by two journalists and operates with a private ADS-B antenna near the airport.
In the U.S., the National Business Aviation Association has pressed the government for stricter blocking measures. “A businessperson should not have to give up her safety, security, and privacy or business confidentiality just because they get on an airplane,” says NBAA spokesman Dan Hubbard. The association is working with the FAA and others in the aviation industry to develop new tools for more effectively blocking data on private aircraft in the era of ADS-B coverage. “Claims that this information is secret or ‘sensitive’ do not hold water,” ADS-B Exchange says on its website. “Any member of the public with $100 and the ability to order parts from Amazon can receive this data.” Just getting planes’ basic information isn’t enough for someone trying to track them for investing purposes. Figuring out who owns a particular aircraft, or is likely to be flying in it, can be tricky, given the common use of shell companies and foreign registrations. Paid services may task employees with the chore of following a jet’s paper trail as far as possible to suss out which aircraft are worth watching.
It seems unlikely that flying will ever be completely private again. “The technology to track these aircraft is cheap and widely available,” says David White, vice president of business development at Cirium, an aviation data and analytics firm. Even if public data sources mask more data about flights, companies with hedge fund clients could “pick and choose the business hubs” where private aircraft movements would most likely yield cues about corporate activity, White says. “It’s not rocket science, that’s for sure.”
Note: the above material is neither investment research, nor financial advice. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services and as an Investment Advisor.