Exposing the Conservative Hedge Fund Scandal: Better Late than Never – Or Too Little Too Late?

The Times newspaper’s big weekend scoop – that the Chancellor enjoyed a “budget day cocktail party with financiers who may have profited from the crash” caused by his economic policies – rightly raised concerns about the influence of hedge funds in politics.  

Following Kwasi Kwarteng’s mini budget just over a week ago, the pound plunged to its lowest level since the mid-1980s; the Bank of England was forced to raise interest rates; mortgage providers withdrew offers from hopeful buyers; and the International Monetary Fund made a rare intervention, warning that the Government’s tax cuts during a cost of living crisis “will likely increase inequality” in the UK.

That Kwarteng was drinking champagne just hours after making his announcements with hedge fund managers set to benefit from the pound crashing – who, according to a source, told him to “double-down” on his plans – is clearly a matter of public interest.

“After the reception on Friday, at least two prominent hedge fund bosses told City associates that Kwarteng was a ‘useful idiot’,” The Times report said. “A senior Tory who advises business leaders said the phrase was in widespread circulation.”

The UK’s political system is a representative democracy, not an oligarchy. How are the interests of the British public served when a tiny elite, concerned with their bottom lines, are making their voices heard in the ear of the Chancellor?

As The Times observed, “the disclosure raises questions about Kwarteng’s political judgement. It will also raise concern that the event informed his decision to announce plans for even bigger tax cuts despite the market’s negative reaction to his initial plans”.

So why, when Byline Times raised the issue of hedge funds and their influence on politics three years before, was it met with such scorn and ridicule from prominent voices in the established media?

Why Boris Johnson’s Funding from Hedge Funds is a Matter of Public Interest

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 Times Team

In an article published in September 2019, Byline Times reported that then Prime Minister Boris Johnson’s leadership campaign backers in the City stood to make billions from his “do or die” pledge for Brexit by the end of that October. From the financial data publicly available at that time, we revealed that £4.6 billion worth of aggregate short positions on a ‘no deal’ Brexit had been taken out by hedge funds that directly or indirectly bankrolled Johnson’s leadership campaign. 

Byline Times quickly acknowledged, when alerted, that one of the graphs contained in the article was incorrect. Given the high standards on accuracy we aim for, it is something I wished we had not missed. But the rest of the reporting in the article was sound and there was certainly a significant public interest in raising the matter.

But the reaction we received – that this was a ‘non-story’ – seemed oddly disproportionate. Particularly because the story didn’t come from nowhere. Although Byline Times was only a year old, its Executive Editor Peter Jukes had already reported on hedge fund manager Crispin Odey’s gains from the vote for Brexit in 2016; and how Paul Marshall, the head of the second-biggest hedge fund to benefit from the vote to leave the EU, also played a role in convincing Vote Leave leader Michael Gove to back Brexit. 

One of the primary criticisms of Byline Times was that it didn’t understand how hedge funds work – that it is their job to bet and gain and, in this, they were doing nothing wrong. But this wasn’t the issue the newspaper was raising. It may well be the job of hedge fund managers to take out short positions and bet on certain results, but they should have no bearing on government policy that could potentially benefit them in this way.

It was the potential influence that these financiers could wield that was of concern – as we have seen with Kwarteng’s budget day cocktail party, which has shocked many, as it should.

Kwarteng once worked at Odey’s hedge fund, and Odey also incubated Somerset Capital – the investment fund co-founded by current Cabinet Minister Jacob Rees-Mogg and Dominic Johnson, recently elevated to the House of Lords and given a role as a Trade Minister.

“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,” we observed at the time. “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.”

I believed that a key question for the journalists who were convinced that Byline Times had got it wrong – and with considerably more resources at their disposal than a small start-up newspaper – was: why don’t you look deeper into the issue and prove us otherwise?

But our reporting did cause ripples elsewhere.

Following the Byline Times report, Boris Johnson’s sister voiced concerns that her brother was being influenced by “people who have invested billions in shorting the pound or shorting the country in the expectation of a ‘no deal’ Brexit” – which he dubbed “absolute nonsense”.

Former Chancellor Philip Hammond followed up on her comments, writing in The Times that “as his sister has reminded us” Boris Johnson “is backed by speculators who have bet bullions on a hard Brexit – and there is only one outcome that works for them: a crash-out ‘no deal’ Brexit that sends the currency tumbling and inflation soaring”.

Former Permanent Secretary to the Treasury Nick Macpherson said Hammond was right to question the political associations of hedge funds with a financial interest in a ‘no deal’ Brexit.

Meanwhile, hedge fund manager Odey dismissed as “absolute nonsense” the notion that his support for a ‘no deal’ Brexit was driven by a chance to make considerable sums from short-selling British companies and the pound. His denial came after a Channel 4 documentary, The Tories at War, in which Odey appeared to be advocating, just two days before Johnson was elected Conservative Party Leader, the subsequent decision to – as it turned out, unlawfully – 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?” he said. “You’re not going to change this current Parliament, so you’ve got to dissolve it in some way.” As Peter Jukes revealed, the Odey interview was recorded on 22 July – two weeks before this plan was formally presented to Johnson by his director of legislative affairs, Nikki da Costa, and a month before it became public knowledge. 

Thanks to the Supreme Court, the UK Parliament was not prorogued in the autumn of 2019 and a ‘crash out’ Brexit on 31 October never came to pass. Bloomberg later reported that pound dollar swaps had doubled around that date, but if anyone bet on the pound crashing that day, they would have lost money.

However, it should still have been a red light about the conflicts of interest when politicians can make drastic market-moving decisions which could potentially benefit their wealthy donors. Why was this not investigated at the time? 

In the past three years, we have seen the Conservative Party relying on a narrower and narrower base of super-rich donors, and with scandals such as the ‘VIP lane’ for PPE procurement during the pandemic, the public have a right to fear that the Government is serving the interests of its billionaire backers rather than the interests of the country as a whole. 

Brexit Disaster Capitalism: Are Boris Johnson’s Hedge Fund Backers Driving Policy?

Peter Jukes

That influential sections of the media are now, finally, starting to ask urgent questions of the role of hedge funds in British politics is a good day for our democracy. But why this is only now being scrutinised also raises serious questions about the established press and its own closeness to politicians.

As the Boris Johnson era showed, actions against the interests of our democracy develop and persist when there appears to be no examination or rebuke of them. That a wake-up call of sorts seems to have come following Liz Truss and Kwasi Kwarteng’s radical economic decisions is, of course, welcome. But we must ask ourselves: is it better late than never – or too little too late?

For me, in the early days of Byline Times, taking on the editorship of a start-up newspaper determined to report on ‘what the papers don’t say’ and to highlight the failings of the mainstream press, was a big leap of faith. Aged 31, was I damaging my chances of working in the rest of the media forever? 

The reaction our story about hedge funds received was galvanising. It was the moment I was convinced that Byline Times – against the odds – was doing the right thing and that it was the right place for me. Free of fear or favour. Fearless and independent. Outside of the system.