Brexit Disaster Capitalism: Are Boris Johnson’s Hedge Fund Backers Driving Policy?
A documentary by Channel 4 confirms Byline Times’ concerns about the potentially damaging role on policy of hedge funds and city traders, who are the Prime Minister’s main financial backers.
The troubling role of one of the few sectors in the economy which could benefit from a ‘no deal’ Brexit was exposed by a Channel 4 documentary on Sunday, including an interview with Crispin Odey, a hedge fund owner who contributed more than £870,000 to pro-Leave groups in the run-up to the 2016 EU Referendum, as well as bankrolling the parliamentary campaign of MP Jacob Rees-Mogg and the leadership campaign of Prime Minister Boris Johnson.
Odey, with his partner at Odey Asset Management, made a fortune of £350 million by shorting the pound and moving 65% of his fund into gold in anticipation of the shock Brexit result three years ago.
Prior to the EU referendum, Odey had incubated Rees-Mogg’s Somerset Capital Management hedge fund as a start-up.
This summer, Odey was reported by The Times as having made an equally large bet on UK equity prices crashing – £299 million in short positions on some of Britain’s biggest firms. In June he donated to Boris Johnson’s Conservative Party leadership campaign. On the day before Johnson’s victory was announced, according to the Channel 4 documentary The Tories at War, Odey appeared to be advocating the subsequent decision by the Prime Minister to prorogue Parliament.
“If you’re looking for somebody who wants to carry out Brexit, you want somebody who actually will think, once he is crossed, how do we get this done?” Odey told Channel 4 on 22 July. “You’re not going to change this current Parliament, so you’ve got to dissolve it in some way.”
According to evidence lodged with the Supreme Court, the plan to prorogue – or suspend – Parliament was not formally presented to Johnson until 15 August by his Director of Legislative Affairs, Nikki da Costa, although it had been discussed with the Prime Minister’s Chief of Staff Dominic Cummings. The Observer leaked the story on 24 August. Five days later, Jacob Rees-Mogg, Leader of the Commons and Lord President of the Council, travelled to Balmoral to meet the Queen and formally request the suspension of Parliament.
Odey is subsequently recorded in the Tories at War encouraging Johnson to go for a snap election, even changing the date ‘perfidiously’ from 14 October to the 4 November after Parliament had been suspended.
That Odey had such a strong interest and apparent knowledge of the actions of the prime minister, including a desire to prorogue Parliament a month before it happened, raises a question of acute public interest: how involved – and how influential – are the rich backers who have funded the Prime Minister so far?
The Key Decision-Maker
This is not the first time senior Brexiters seem to have been swayed by the opinions of their financial backers. Back in 2016, another senior hedge fund contributor, Sir Paul Marshall, played a key part in the Vote Leave campaign.
Johnson’s key ally in the Vote Leave campaign was his cabinet colleague Michael Gove. According to the Sunday Times’ chief political editor Tim Shipman, in his book, All Out War, Gove “finally made up his mind to back Brexit on Thursday, 18 February, after calling Paul Marshall, a hedge fund manager he had got to know through his chairmanship of the Ark chain of academy schools”.
Before founding Marshall Wace in 1997, Sir Paul was a director of the giant Blackrock company, which has now nearly $6 trillion dollars of assets under management. He donated £100,000 to Gove and Johnson’s Vote Leave campaign according to the Electoral Commission.
The Market-Moving Conflict of Interest
The timing of Odey’s comments in July and Johnson’s actions since entering Downing Street highlights the potential for conflicts of interests to arise between the Prime Minister’s backers and the national interest as a ‘no deal’ Brexit looms.
While it is the role of hedge funds to reduce risk by spread betting on multiple market fluctuations, a ‘no deal’ Brexit is a one-off market-moving event ultimately in the control of politicians.
In his first statement on the steps of Downing Street, the new prime minister vowed to leave the EU on 31 October “no ifs or buts,” adding: “People who bet against Britain are going to lose their shirts.”
A week before the Government’s official spending watchdog, the Office for Budget Responsibility, warned that a ‘no deal’ Brexit would shrink the UK economy by 2% in 2020 and trigger a recession. The Centre for Economic Performance at the London School of Economics has forecast that the average household could lose between £2,519 to £5,573 per year from real incomes over the next 15 years.
However, according to City insiders, Boris Johnson’s push towards a ‘no deal’ Brexit is a “free lunch” for hedge funds and currency traders. Sir Jim O’Neill, the former Chairman of Goldman Sachs’ Asset Management, told Radio 4’s The World at One that Johnson’s ‘no deal’ push was seen by some of his former colleagues as a positive thing. “A lot of them are saying thank goodness for Boris, he’s giving us a chance to make some money,” O’Neill said.
The Rising Influence of Hedge Funds
While there has been some debate about Byline Times’ exclusive story on donors to Boris Johnson and the Vote Leave campaign amassing $8 billion in short positions around a ‘no deal’ Brexit, the central finding – the exorbitant role of hedge funds and traders in his campaign – has not been questioned.
In a detailed investigation, Byline Times determined how many donations to Johnson’s Conservative Party leadership campaign came from hedge funds, City traders or wealthy investors. This revealed that, between 24 May and 23 July 2019, £357,500 of the £552,500 came from such donors. They made up 65% of the value of the donations, and 30 out of 40 (75%) of the number of donors.
This contrasts starkly with 2015 when the then Labour Party leader Ed Miliband attacked the Conservatives as “the party of Mayfair hedge funds and Monaco tax avoiders”. That year, the Financial Times revealed that eight of the top 20 donors, who accounted for 35% of all party funding, had a City background.
In 2017, the Independent calculated that just over 25% of all donations to the Conservative party – totalling £11.3 million – had come from hedge funds or people associated with hedge funds, investment bankers and the finance sector in general.
Traditionally, the Conservative Party relied on various sectors of industry and small businesses for its political funding, but most of these have decried a ‘no deal’ Brexit as bad for business. By contrast, Boris Johnson remains heavily reliant on one of the few sectors – hedge funds, foreign exchange and derivative trading – which could actually profit from a sudden decline in share prices or the fall of sterling.