Brexit: Polling companies, hedge funds and Farage

Bloomberg have published an investigation that implies that Nigel Farage and hedge funds had market moving information from polling companies on the Brexit vote.

Hedge funds paid for access to polling data before it was released to the public. Knowing the likely impact of those polls, these hedge funds were then able to place positions.

The investigation raise issues of possible breaches of UK electoral law.

It also raises the credibility of the Brexit vote and could strengthen calls for a second referendum.

Benefits of a heads up on polling data

In a nutshell, polling companies sell their polling to hedge funds ahead of public release.
Knowing the reaction to those polls the funds can take positions ahead of time. It doesn’t necessarily matter if the polls are accurate, just that they move markets in a predictable fashion.

Bloomberg sums it up:

“If public polling up to and on the final day inflated a bubble, how might private polls have helped traders?
In at least two ways, according to pollsters involved, hedge fund traders and consultants.

First, commission a private poll that closely tracks what will be released to the public, as in Operation Pomegranate, tipping traders in advance to how the market may move.

Second, get better data than the public has, allowing traders to see if the market’s faith in the pound is misplaced, or the currency is overvalued.

Both strategies come with some risk, but because the trader is betting against the prevailing market sentiment, the bet is cheap and the potential payout is high—just the sort of situation hedge funds love. For traders, it doesn’t matter if the pollster’s ultimate exit-poll prediction is wrong (as some were on Brexit night). Hedge funds’ internal models, some far more advanced than anything in the polling industry, fed on raw data, such as turnout in specific regions, that allowed them to make smarter bets.”

Possible breach of electoral law

The article points to the possibility of a breach of electoral law.
UK electoral law forbids the publication of exit polls before polls close. This is because they “…could affect the election results by influencing those voters still yet to vote”.

Some may also take the view that these activities skirt close to insider trading.

Undermine credibility of Brexit

What Nigel Farage , the polling companies and the hedge funds did probably had no impact on the Brexit vote.

But the impact of this investigation will be more political than legal.

Brexit’s opponents will seize on the story to undermine the credibility of the Brexit vote.

A Brexit re-vote is still unlikely. But Brexit’s opponents will no doubt use Bloomberg’s investigation to strengthen their case for a second referendum.

Gary Hollands

Geopolitical analyst Tyga FX