Hedge Funds made millions from the collapse of the pound following the 2016 Brexit referendum, a major investigation by Bloomberg concluded earlier this week, with chief Brexiteer and leader of the UK Independence Party Nigel Farage allegedly playing a central role in what the Bloomberg piece describes as a ‘heist’.
Hedge funds hired some of Britain’s most preeminent polling firms to help them profit on an anticipated currency crash following the Brexit vote, the investigative piece “Brexit’s Big Short: How Pollsters Helped Hedge Funds Beat the Crash”by Cam Simpson, Gavin Finch, and Kit Chellel finds. Among those who benefited was Crispin Odey of Odey Asset Management, a major donor to the Leave campaign, who shorted sterling based on private polling and moved 65% of his fund into gold. As the market did indeed crash, Odey earned £220m in the space of a few hours.
As the Brexit referendum polls closed at 10 PM on the evening of June 23rd2016, a YouGov exit poll showing Remain comfortably ahead in the Brexit vote was broadcast on Sky News. An interview with Farage conceding defeat for the Leave camp appeared immediately – despite Farage receiving private polling an hour prior indicating that Leave would, in effect, win the referendum, the Bloomberg investigation finds. Farage appeared on television again about an hour and a half later reiterating his apparent concession that Remain had won. Meanwhile, election returns from around the country began suggesting the opposite.
The private exit poll Farage relied on was conducted by Survation, which is run by Farage’s personal pollster Damian Lyons-Lowe. Survation correctly predicted the Leave result, which Farage learned of before he made the public concessions that Remain had won the vote, in effect knowingly feeding markets with incorrect information. Other Survation clients included Brevan Howard, Tudor Investment Corp. and Nomura Holdings Inc.
Hedge funds also employed the services of at least five other pollsters, including YouGov itself. Irrespective of the varying exit poll predictions from different pollsters, hedge funds obtained critical advance information, “including data that would have been illegal for them to give to the public.” Others learned poll outcomes before they were published, amounting to “the biggest insider trading job in history, when pollsters colluded with hedge funds to create a fake bubble that was burst by a fake concession” delivered by Farage, according to Observer journalist Carole Cadwalladr.
Farage, then, essentially conceded defeat when he was already reasonably certain his side had won, moving markets and allowing those hedge funds who had also paid for access to the Survation poll to outwit them. “He got it right. And whoever, whichever clientele, whichever City hedge funds paid him that day, did very well out of it,” Farage, himself a former City trader, said of Survation’s Lyons-Lowe at the time.
Having information that a market is about to move enables hedge funds to ensure that they’re positioned to gain in advance. For example, if sterling is about to rise in value, a trader can go ‘long’ on the currency, buying more at the current value in anticipation of it rising. If it’s about to crash, as the recipients of the Survation poll would have been aware of – including Farage, whose disinformation about the result enabled traders to benefit from the short-term rise in sterling’s value by trading against it – traders will ‘short’ the currency by selling existing holdings or buying futures contracts to increase what they stand to gain.
“Part of the reason they could make a profit on this trade was that the financial markets – like so many people – had got this wrong. They miscalculated the chances of a Leave vote,” the Bloomberg investigation co-author Kit Chellel told LBC’s, James O’Brien. “That made it very cheap for hedge funds to trade the pound and increase their potential profits. But they needed to have an accurate gauge of public opinion and that’s where the polling firms came in.”
“If you knew that a polling company would be releasing a public poll at a given time, if you were able to predict in advance what that public poll would say, you could trade off the poll itself. You could know how the market was going to move, based on the poll,” Chellel explained.
Farage’s response to the Bloomberg article was characteristically effervescent.”Chaps at Bloomberg, it’s a wonderful little conspiracy, it’s all a bit of fun, but it’s a complete load of old tosh,” he said.
Tosh or not, the revelations will increase scrutiny of future collusion between pollsters and money managers, not least considering that the Brexit referendum was not even the first time it had happened (the earliest recorded instance was the Scottish Independence vote of 2014, according to Bloomberg). Uncertain conditions following the UK’s departure from the EU next year will likely bring the temptation of more such collusion.
Farage, the hedge funds and the pollsters, meanwhile, are declining further commentary.