Page 35 - Bloomberg Businessweek July 2018

Bloomberg Businessweek July 2, 2018

BREAKING NEWS: UKIP leader Nigel Farage Brexit wrought in global financial markets. Pollsters wouldn’t
sensationally concedes DEFEAT within seconds name clients, but at least a dozen were involved, Bloomberg
of voting closing as final poll gives Remain found. The private exit poll that appears to have had the most
the edge 52% – 48% in historic EU referendum clients was Survation’s. It correctly predicted Leave, accord-
ing to Farage and other sources familiar with the results.
The news pushed the U.K.’s currency up—herding inves- But it wasn’t necessary to get the outcome right to profit. As
tors toward a cliff hours ahead of one of the largest crashes YouGov’s Twyman predicted a Remain victory on Sky, three of
for any major currency since the birth of the modern global his colleagues were watching from inside the London office of
financial system. a hedge fund. In addition to the public exit poll for Sky, YouGov
At 10:52 p.m. the pound rose above $1.50 and reached its sold a private exit poll to this fund, the identity of which
highest mark in six months. A few minutes later the Sky News Bloomberg hasn’t determined. Having data that matched what
economics editor appeared before a giant screen showing the Twyman would later present on television gave the fund’s trad-
spike. The pound had been rising and falling with poll results ers an edge for betting on the rise in the pound sparked by
for months, he explained. Whether they were on couches in his comments, according to sources familiar with the events.
London or at trading desks in Chicago, people watching Sky or YouGov staff code-named its arrangement with the hedge fund
reading headlines sparked by its coverage had every reason to Operation Pomegranate. It charged the firm roughly $1 million,
think Remain would prevail. But not quite everyone. according to knowledgeable sources. Separately, YouGov gave
For weeks, hedge funds had been buying preelection sur- Sky its poll for free. The hedge fund did extremely well, accord-
veys from polling companies and trading on movements in the ing to three sources familiar with the situation.
pound as sentiment shifted. Now was the big one. For refer- Two years after the historic vote, the pound is back at $1.32,
endum day itself, hedge funds had hired YouGov and at least the bottom of the crash that morning. Inflation is up, and the
four other polling companies, including Farage’s favorite, Bank of England has said British households are poorer than
Survation. Their services varied, but in some cases the poll- they would be had the vote gone the other way. People remain
sters sold the funds exit-polling data that would have been ille- divided, while the government of Prime Minister Theresa May
gal to give the public. Through these private exit polls, some is deadlocked over how to move forward.

38 hedge funds gained confidence that most Britons had voted After the world asked how the nation’s leading pollsters
to leave the EU, or that the vote was far closer than the public could have been so wrong, British lawmakers began an inquiry
believed, and were in the perfect position to earn fortunes by into whether misleading polls, in the referendum and other
short selling the British pound. recent elections, were distorting democracy. But even mem-
Hedge fund managers, of course, try to beat the market by bers of a House of Lords select committee that looked into
getting the best information they can. For exit-polling data, the subject had no idea that the companies they were prob-
that’s a tricky business. Pollsters have always sold surveys to ing had essentially become tools for firms wagering on the
private clients, but U.K. law restricts them from releasing exit- nation’s mood and votes. The Lords’ final report, released in
poll data before voting ends. While some of the practices dis- April, made no mention of the relationships between pollsters
covered by Bloomberg fall into a gray area, the law is clear: It and hedge funds.
would have been a violation if, prior to the polls closing, “any George Foulkes, a Labour member of the upper House of
section of the public” had gotten the same data the pollsters Lords, was the driving force behind the select committee. On
sold privately to hedge funds. June 25, he called for a parliamentary inquiry into the “aston-
One person with questions still to answer is Farage, a former ishing” practices revealed by Bloomberg. “The case for statu-
commodities broker who also worked for a London currency tory regulation of polling companies is now overwhelming,”
trading company after he moved into politics. He twice told Foulkes said.
the world on election night that Leave had likely lost when he
had information suggesting his side had actually won, mean- ELECTION POLLING FOR MEDIA COMPANIES IS LARGELY
ing there was a good chance he was feeding specious sentiment a brand- building affair for U.K. pollsters. Charging the press lit-
into markets. He also has changed his story about who told tle, or even nothing, they use media polls as marketing tools
him what regarding that very valuable piece of information. to attract lucrative commercial clients. About 99 percent of
Bloomberg’s account is based in part on interviews over the more than £4 billion pounds ($5.3 billion) in annual indus-
seven months with more than 30 knowledgeable current and try revenue typically comes not from elections but from
former polling-company executives, consultants, and trad- marketing- related research—such things as, “Do you prefer
ers, almost all of whom spoke on the condition they not be Coke or Pepsi?” As the Lords committee report explained, PREVIOUS SPREAD AND THIS SPREAD: SOURCE: GETTY (2)
named because of confidentiality agreements. Pollsters said election polls were “described by many of the witnesses as a
they believed Brexit yielded one of the most profitable sin- ‘shop front’ ” for their commercial activities.
gle days in the history of their industry. Some hedge funds In 2014, during the runup to the Scottish independence
that hired them cleared in the hundreds of millions of dollars, referendum, YouGov published polls that showed national-
while that industry on the whole was battered by the chaos ists jumping ahead. It set off a panic; nervous investors sent