Nicky Morgan, the Remain-supporting Conservative MP for Loughborough and Chair of the Treasury Select Committee, has called for hedge funds to be banned from profiting from privately commissioned polling data.
This latest moral panic has been set off by a Bloomberg news report, published yesterday, claiming that hedge funds made huge profits through the private polling they commissioned during the 2016 EU referendum campaign.
The profits were achieved, the report maintains, by the hedge funds obtaining polling data in advance of similar polls by the same polling companies being published in the media – and thus being able to pre-empt what these polls would mean for the value of Sterling.
The report raises the question of why Nigel Farage, on the night of the referendum, twice conceded defeat after polls closed at 10pm even though he had already seen the results of a large scale (10,000-plus respondent) private poll commissioned by a hedge fund showing that Leave had won. The Bloomberg reporters speculate that Farage might have “conceded” in order to manipulate the value of Sterling. The pound certainly did strengthen on the back of Farage’s statements and subsequently crashed dramatically when the first actual results suggesting we might be heading for a Leave victory came through from Newcastle and Sunderland.
But does Morgan’s idea make any sense? One would hope that when institutions decide how to invest their client’s money, they base their decisions on more than gut instinct. Indeed, Morgan would surely not argue that all large-scale investors should be forced to make all their decision-making tools publicly available. Why, then, should polling be treated as a privileged case?
Private polls are not a magic route to making huge gains on the market. For hedge funds to commission them is no more sinister than commissioning any other kind of private research. As the Bloomberg report makes clear, Crispin Odey’s fund made around $300 million dollars on the night from the fall of Sterling. Odey’s firm was certainly one of those to commission large-scale polling during the referendum campaign. But others also commissioned private polling – and called the result wrong.
On the day of the referendum an acquaintance who was a senior manager in London for a very much larger US hedge fund – and for what it is worth a European national and ardent Remainer – was getting private polling pointing towards a strong Remain victory. During the day, due to the polling they had commissioned, he moved from being 75 to 80 per cent convinced of a Remain victory to being more than 95 per cent sure that Remain would win. This hedge fund lost well in excess of £100 million on the night.
Odey is an ideal villain for some as he is a strong supporter of Brexit and donated £640,000 to various pro-Brexit campaigns during the referendum.
But Odey’s political donations do not reflect his economic interests. His funds have taken an extremely bearish view of the prospects for the UK economy, especially after the Brexit vote, and have lost much more than they made on the night of the vote.
It is always tempting to believe private polls are somehow likely to be more accurate than published polls – and the pollsters themselves do little to discourage this belief. As Stephan Shakespeare, founder and CEO of YouGov, sceptically noted in the aftermath of most polls calling the 2015 election wrong, “It’s amazing how the secret polls were all bang-on right”.
The fund management market is an appealing one for pollsters not only because financial institutions are willing to pay more than the media. Newspapers and broadcasters want concrete numbers to give their audience – who is going to win and by how much. Investors deal in probabilities; they are much more content to hear that there is a 70 or 80 per cent probability of a certain outcome. This puts pollsters on safer ground.
What is more, it is not the polls which convinced most hedge funds that Britain would vote to Remain. The polls in general throughout most of the campaign showed that the UK was heading towards a Remain win, but there were at least 34 published polls during the official campaign, from April 15 to June 23, which showed a Leave majority. Virtually all the polls were pointing towards a close result. Yet by all accounts most financial institutions thought the likelihood of a Remain win was 80 per cent or higher. This disparity had nothing to do with the polls and everything to do with the faulty interpretation put upon them. It suggests that the financial markets, in aggregate, had a pro-Remain bias in their assumptions.
What of the claims about Farage’s conduct on the night? While conducting research for a book on the referendum which I co-wrote with Oliver Wiseman, we did establish that Farage’s early “concessions” are not readily explicable, other than perhaps the veteran candidate suffering a bad case of nerves.
Farage and his coterie gathered that evening in the Westminster residence of UKIP’s pollster Chris Bruni-Lowe. Farage was shown the result, as the Bloomberg report states, of a large-scale exit poll which clearly pointed towards a Leave victory. At this stage Farage went upstairs to one of the bedrooms in the house to rest and freshen up before the night. The UKIP leader took a call and shortly after 10pm, while Farage was still upstairs, Sky was reporting that he had told them that he thought Remain would narrowly win. The report caused astonishment to those gathered downstairs in Bruni-Lowe’s house as they heard it as Farage had given no indication that he would be speaking to the media or indeed conceding, especially when the others gathered there were now confident of victory. Farage repeated his assertion of impending defeat to the Press Association.
What his motive for the repeated “concessions” on the night was, we will probably never know.
What is clear, however, is that neither the hedge funds’ private poll nor whatever Farage may or may not have been up to on the night had any impact on the referendum result.