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Wed 20 November 2019
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Following Byline Times’ story on the donors to the Prime Minister we provide more information on our findings and the importance for British politics.


Byline Timesexclusive story examining the short positions of hedge funds, which have been donors to both Boris Johnson and his Vote Leave campaign, has aroused great public interest.

This was the third in a series of stories in which Byline Times considered the funding around the Brexit campaigns. 

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. 

In response to criticism of the article, what follows is a summary of our investigation for further discussion.


Our Methods

The research into this story took place over many months.

Byline Times reached its conclusions and the £8.3 billion figure by focusing on the donors to Boris Johnson’s leadership campaign, and the Vote Leave campaign, who are connected to hedge funds. The short positions taken out by these hedge funds were the ones of primary concern.

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 and rich investors. Out of 40 donations made between Johnson announcing his leadership bid on 16 May and 23 July, when the result of the Conservative Party leadership election was announced, up to 30 of those donations were either from hedge funds, part of the City or wealthy investors.

The Financial Conduct Authority, the regulator for financial services and markets, publishes a daily update, publicly available, of short positions on equities disclosed to it by hedge funds and traders. 

Bylines Times examined the data it provided for the period 15 January 2019 to 23 July 2019, for UK firms which took out or amended existing short positions. It was a time-consuming and complicated process to remove all US and other firms as they all had to be looked up individually.

This data showed that UK firms had updated their short positions rapidly after the announcement of Johnson’s leadership bid on 16 May. Critics of Byline Times’ article have been unable to replicate the data for the entire market, and it is seeking to understand why. It may be because Byline Times counted the number of position holders taking out positions, not the number of short positions. However, it is the donor cohort and their short positions which is of primary public interest.

By using Short Interest Tracker, a public data source provided by Research Tree, it was possible to see the value of the short positions of the donors to Boris Johnson and the Vote Leave campaign. This showed that the value of the short positions had increased – that more money was being staked on the expectation that the stock prices of a broad range of UK companies would fall in the immediate future.

Byline Times then calculated the value of short positions of this cohort of donors which was, as of 8 September 2019, around £4.6 billion. Once donors to the Vote Leave campaign are added, this figure rises to a position of around £8.3 billion vested in a declining domestic stock market.

These figures will have no doubt moved since Byline Times’ snapshot and may be subject to correction. As promised, we have shared out underlying research and data with another media organisation to double check. However, it is difficult to deny that there is a great deal of money at stake in how Brexit pans out.


Conclusions

Byline Times did not suggest that any fund or trader used any insider information to make individual decisions to take these positions.

Boris Johnson’s position that the UK will leave the EU, with or without a deal on 31 October when the current extension ends, has been public knowledge since he announced his bid for the Conservative Party leadership. There could be a myriad of reasons why these hedge funds would want to short UK stock in the near future. 

Byline Times was not suggesting, as 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”. Byline Times does believe that “with a no deal looking probable, they might be positioning their portfolios accordingly”.

What Byline Times did ask in the article is a matter of high public concern: does 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? 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?

This is a political question directed at the Prime Minister, which we have sent to him and the Cabinet Office.

That 65% of Boris Johnson’s donations came from hedge funds, city traders and rich investors is problematic – politically. That up to 30 of them have connections to hedge funds which have increased their short positions over his assuming the leadership of the Conservative Party is problematic – politically.

The inference is not 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.

As the Ministerial Code makes clear, ministers should not only be free from conflicts of interest, but free from the appearance of conflicts of interests. That is where the problem lies; that there could be a perception that the country’s interests are diverging from the financial forces surrounding the Prime Minister. 

The data about donors, their related hedge funds, and their short positions over the past six months is all publicly available. Byline Times’ aim has been to start a public discussion of this important issue in British politics. 

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