THREAD: A detailed insight into the role of hedge funds during the EU referendum and whether they are really influencing Brexit now.
1. This thread considers why hedge funds were involved in the EU referendum, their funding of leave campaigns and indeed whether such companies colluded to make substantial financial gains in the process.
2. Even before the EU Referendum, hedge funds have played a significant role in politics. Take for example, the Lisbon Treaty referendum in 2009 which alerted hedge fund managers to the use of referendum campaigns as mechanisms for financial gain.
3. It transpired in 2009 that financial backing of anti-EU campaigners came from hedge-fund managers while some funds had taken out specific bets on the insolvency of the country if the Irish people returned another ‘No’ vote.
4. A very similar tactic was adopted by hedge funders during the 2016 referendum who made billions of pounds adopting the ‘short position’ on the outcome.
5. Hedge funds like the sort of market volatility predicted in 2015 by a US investment bank: Morgan Stanley claimed that if the UK voted to leave the EU, shares in the FTSE 100 could underperform by 20%.
6. Any drastic movement in the share prices of Britain’s biggest listed companies are an alluring prospect and can be a trigger for hedge fund managers to make profits by betting on slumping prices.
7. But the prospect of some profitable trading is not the key reason why many of those in the hedge fund business – led by billionaires Crispin Odey and Sir Michael Hintze – are necessarily backing Brexit.
8. Most of the big City firms and institutions – from Goldman Sachs and Citigroup to the Lloyd’s of London insurance market and the City of London Corporation – believe Britain is better off staying in the EU. Leaving, they argue, would endanger the status of the City.
9. They had clear professional reasons why they want the UK to leave the EU: a dislike for what they regard as overburdensome – and profit-reducing – regulation.
10. Some hedge fund companies were adamant that the UK should break ties with the EU following the imposition of the Alternative Investment Fund Managers Directive (2011/26) which was designed to regulate hedge funds for the first time since the 2008 financial crisis.
11. Historically, hedge funds have traded without regulators and lacked transparency. Then Commissioner for Internal Market and Services Michel Barnier introduced the rules in order to reintroduce financial stability back into markets to avoid another major financial crisis
12. But according to one source close to the industry: “the profit potential from leaving is also a factor: “They love taking a view ... Market dislocation is fine if you’re a hedge fund guy.”
13. What is a short? Well in *short* it is when a trader sells a security first - without owning it - with the intention of rebuying it or covering it later at a lower price.
14. A fund might borrows shares from a City investor who charges a fee for the service. The fund then sells the shares in the expectation of buying them back more cheaply when the price falls. The difference between the two prices is pocketed as profit by the hedge fund.
15. Despite the risks, around 300 hedge funds adopted the short position anticipating that the 2016 EU referendum would return a leave vote and result in the price of UK stock decreasing in value.
16. Indeed, a Channel 4 Dispatches documentary alleged that Jacob Rees-Mogg earned at least 7 million from management fees and investor returns on the multi-billion Somerset Capital Management fund.
17. Crispin Odey who - along with his partner James Hanbury - made 350 million in the wake of the surprise vote to leave the European Union in June 2016.
18. The relationship between Rees-Mogg and Odey highlights the role of up to 300 hedge fund owners, investors and city traders who actively campaigned for Brexit and cashed in on the result.
19. It should come as no surprise that most of these hedge funds were represented by Vote Leave during the referendum campaign.
20. The sheer scale of the documented lies told and the degree of collusion between Leave campaigns and their donors to win at all costs (including the report of breaking electoral law) is suspicious to say the least.
21. This presents us with the presumption that the lies told during the 2016 EU referendum campaign by Vote Leave were not necessarily to just win the referendum but - arguably - for some to make significant financial gains from the result.
22. The primary group that the Vote Leave campaign represented was hedge fund companies, who, in return, provided major donations to the cause. In fact, Vote Leave was established by hedge fund managers and City traders.
23. The collective membership of both City for Britain and the Business Council for Vote Leave equated to approximately 300 hedge fund companies.
24. Indeed, multi-millionaire City financiers in 2016 who bankrolled campaigns for Britain to quit the EU spoke of their fears in 2017 that Brexit would never happen.
25. Jeremy Hosking, who donated seven-figure sums to anti-EU campaigns and to the Tory party, said he was ‘pessimistic’ that Brexit will take place in a meaningful way as it will be so watered down.
26. Hosking’s misgivings followed the two weeks of political wrangling over the terms of the split from the EU in Theresa May’s ‘Withdrawal Agreement’.
27. Hintze, a major Tory donor who founded the hedge fund CQS in 1999, backs the campaign group Business for Britain and was said to be considering a donation to the Vote Leave campaign. Odey, founder of Odey Asset Management, was also a backer of Vote Leave.
28. Odey, however, dismissed the view that hedge fund backers of the anti-Europe campaigns were doing it out of self-interest and insisted his opposition pre-dates regulation that followed the financial crash. “There’s nothing scary for hedge funds per se from Brussels,” he said.
29. There were other ‘out’ campaigners from another sector of the City not dissimilar to the hedge fund industry: spread betting.
30. These firms also allow people to make bets on share price movements without actually owning the stock – and like hedge fund owners, a spread better can make a fortune from an economic shock.
31. Anti-EU supporters from the spread betting industry include Peter Cruddas, the founder and chief executive of CMC Markets, and Stuart Wheeler, the founder of rival spread betting firm IG Group.
32. Those who studied the funding plans for both sides of the referendum campaign believe the Vote Leave group already had £3m-£5m at its disposal. The rush to raise money was intense because there is no limit to what is allowable before a referendum officially gets under way.
33. Those organisations and their subsidiaries were subsequently given access to inside information regarding the Vote Leave campaign and, more importantly, to its progress.
34. Odey (Rupert Murdoch’s ex-son-in-law) made £220 million on the night of the EU referendum by adopting the short position on the result. He was not alone.
35. Indeed, 85% of the UK based hedge fund companies that went short on the result of the EU referendum (between April and June 2016) were directly or indirectly connected to hedge funds who were part of the Vote Leave campaign.
36. They collectively made hundreds of millions of pounds, Euros and dollars following the referendum result.
37. Vote Leave’s campaign, initially registered by William Norton at 55 Tufton St, was directed by Matthew Elliott out of an office in Westminster Tower which is also the registered address for Fox Business Network, owned by Rupert Murdoch.
38....and the registered address of a number of businesses owned by Richard Tice, who was a key player in Leave.EU and went on to establish Leave Means Leave.
40. Tice, along with Aaron Banks, Andy Wigmore and Jim Mellon are men who owe part of their wealth to working in the City and financial services and would have easily known a number of hedge fund managers who were part of Vote Leave.
40. The Go Movement was primarily UKIP. Its frontman was Nigel Farage who worked in the City as a commodities broker, in consequence he is also familiar with the key players in the City.
41. One commonality between all three groups is the City and a tight nexus of well-connected individuals.
42. Let’s move to the night of the referendum. On polling day, at 10pm Sky News’ Adam Boulton declared he had “breaking news”. Nigel Farage had given what sounded like a concession.
43. He had issued a statement which was read aloud: “It’s been an extraordinary referendum campaign… it looks like Remain will edge it.” Then YouGov’s Joe Twyman added “we now expect that the United Kingdom will remain part of the European Union.”
44. The news that a final poll gave Remain the edge 52%-48% in the referendum pushed the UK’s currency up. In a matter of hours, we would witness one of the largest crashes for any major currency.
45. Shortly after this news, Sterling rose above $1.50 and reached its highest point in over six months. 
46. But we now know that behind all this, a small group of financiers had a secret. Hedge funds were aiming to win big from trades that day and had hired YouGov and at least five other polling companies - including Farage’s favourite pollster.
47. Their services, on the day and in the days leading up to the vote, varied, but pollsters sold hedge funds critical, advance information, including data that would have been illegal for them to give the public.
48. Some hedge funds gained confidence, through private exit polls, that most Britons had voted to leave the EU, or that the vote was far closer than the public believed—knowledge pollsters provided while voting was still underway and hours ahead of official tallies.
49. These hedge funds were in the perfect position to earn fortunes by short selling the British pound. Others learned the likely outcome of public, potentially market-moving polls before they were published, offering surefire trades
50. Hedge fund managers, of course, try to beat the market by getting the best information they can. For exit polling data, its tricky. Pollsters have always sold surveys to private clients, but U.K. law restricts them from releasing exit-poll data before voting ends.
51. Clearly, Nigel Farage’s yielding had a direct impact on share prices rising in reaction to the news, only for prices to significantly decrease once the real result was returned
52. That initial rise, followed by the prices plummeting once the result was announced, equated to hedge funds that went short making substantial financial gains.
53. The private exit poll that appears to have had the most clients was conducted by Farage’s favorite pollster and friend, Damian Lyons-Lowe, whose company is called Survation. It was sold to multiple clients and correctly predicted Leave, said Farage himself.
54. In addition to the public exit poll for Sky, YouGov earlier sold a private exit poll to this fund, which provided data to traders that matched the results Twyman presented on television, effectively giving them an edge for betting on the rise in the pound.
55. YouGov staff code-named it “Operation Pomegranate.” It charged the hedge fund roughly $1 million, according to knowledgeable sources. Separately, YouGov gave Sky its poll for free. The hedge fund did extremely well, according to three sources familiar with the situation.
56. The question: “how could pollsters have been so wrong on the night?” prompted British lawmakers launched an inquiry into whether misleading polls, in the referendum and other recent elections, were distorting democracy.
57. But even members of the House of Lords select committee that looked into the subject had no idea that the companies they were probing had essentially become tools for firms wagering on the nation’s mood and votes.
58. According to Bloomberg, pollsters brainstormed, inside their companies and with consultants, about the range of services they could sell during the EU referendum, often at prices 10 or more times beyond the typical tab for political polls.
59. What’s particularly interesting is that the face of the election-night exit poll - John Curtice - decided that a Brexit exit poll was not feasible as predictive models relied on a comparable vote. However, hedge funds were spending money to create their own private polls.
60. Rokos, which had worked with polling company ICM and Curtice, ended up making more than $100 million, or 3 percent of its entire value, in a single day, according to the results Bloomberg first reported in the wake of the vote.
61. Brevan Howard, which at a minimum bought exit-polling data from ComRes, made $160 million on June 24 alone.
62. At least six other hedge funds were among those negotiating or shopping for polls. These included Arrowgrass Capital Partners, Element Capital, Maven, PointState and TSE Capital Management.
63. Now that we have seen the role of hedge funds in the EU referendum, let's move onto the exclusive story from @BylineTimes that Boris Johnson’s backers stand to make billions of pounds from his ‘do or die’ pledge.
64. On the day Johnson was announced as Prime Minister by his party on 23 July, it was reported that “more than half of the donations received by Boris Johnson originated from donors with ties to the City”.
65. However, Byline Times claims that it had discovered this figure is much higher- and that many of the hedge funds involved are set to make a killing from his hard-line approach to Brexit.
66. According to the records of the Electoral Commission and the Register of Financial Interests, between 10 May and 23 July, "Johnson received £655,500 in donations. Of these, two thirds – £432,500 (65%) – came from hedge funds, City traders or the very wealthy."
67. Many of the donations were from hedge funds and people that Johnson “had worked with on the Vote Leave campaign during the EU referendum.”
68. “Odey, Paul Marshall, Peter Cruddas, Jon Moynihan, Jon Wood, Robin Birley, David Lilley, Philip Harris, JCB and The Bristol Port Company all donated (directly or indirectly through companies they and their co-directors are involved with) to Johnson’s leadership campaign.
69...and also contributed more than £2 million to the Vote Leave campaign.”
70. Byline Times also claimed that £4,563,350,000 (£4.6 billion) of aggregate short positions on a ‘no deal’ Brexit have been taken out by hedge funds that directly or indirectly bankrolled Boris Johnson’s leadership campaign.
71. Now, the two graphs showing the frequency of short positions are contested by the Financial Times Alphaville and Full Fact. They approached independent statistical experts who could not reproduce their results and have since removed the aforementioned section.
72. According to Full Fact: “We think they’ve made a mistake in this analysis: they only looked at the short positions that were still active at the time they gathered the data.”
73. It also argued: “This is not the only potential issue/The article claims that the UK firms taking out those short positions were “almost entirely dominated” by firms that had either “directly, or through their directorships of other companies” donated to Vote Leave.”
74. However, the general frequency of short positions around the Johnson leadership campaign is not the main revelation of the Byline Times piece.
75. Furthermore, both the volume of hedge fund and city donors contributing to his leadership campaign, and the short interest positions of their related firms remains uncontested.
76. The criticism from Full Fact and FT Alphaville - while relevant - seems to detract from the crux of the issue- that there is an inherent conflict of interest when any politician takes the money of a hedge fund (which the PM has).
77. While hedge funds exist to reduce risk by betting on the markets, the prime concern which has emerged is their increasing role in political party and campaign funding and the potential for those campaigns and parties to be influenced by this.
78. As identified through the elections watchdog, the Electoral Commission, and the parliamentary register of members’ financial interests, 65% of Boris Johnson’s donations came from hedge funds & city traders. To what extent is Johnson swayed by these backers, we have to ask.
79. Byline Times did not infer that the hedge funds are doing anything wrong or are motivated to make donations through profit rather than ideology, but that Boris Johnson’s decision-making could be swayed by his reliance on financial institutions and hedge funds for donations.
80. The Financial Times’ Alphaville blog says that “the inference is that hedge funds have used their financial might to influence the outcome of Brexit via political donations”
81. What Byline Times did ask in the article is whether Boris Johnson’s reliance on these donors explain why the Prime Minister has said he would rather “die in a ditch” before asking the EU for an extension?
82. This is exemplified by the fact that Crispin Odey, the day before Johnson’s election spoke of proroguing Parliament before the decision was taken. This interest and knowledge of executive actions substantiates the concerns of conflict of interests.
83. Could it be the reason why Johnson is willing to defy the Benn Act that stops a ‘no deal’ Brexit? Could it be any kind of motivation to prorogue Parliament?
84. So, Byline Times is right to suggest that the fact up to 30 of the 40 donors have connections to hedge funds which have increased their short positions over his assuming the leadership of the Conservative Party is problematic – politically.
85. So, to conclude, it is clear that - while hedge funds might not be explicitly positioning their portfolios accordingly to influence a Brexit outcome, it can be said that Johnson's reliance on them represents a significant conflict of interest in relation to future policy.
