May 20, 2016 / 8:21 AM / 3 years ago

Hedge funds share Brexit views while guarding their bets

LONDON (Reuters) - Are some of Britain’s largest hedge fund managers putting their money where their mouth is on Brexit?

That question is causing some disquiet following the intervention of several top hedge fund figures in the debate over whether Britain should vote to leave the European Union.

Most of Mayfair’s money managers, many of whom don’t even advertise the names of their funds on their discreet town house headquarters in London’s West End, usually keep a low profile when it comes to politics.

Yet they have taken an uncharacteristically public stand on Brexit, with several flagging their voting intentions in the hope of persuading undecided Britons as the June 23 referendum on EU membership nears.

Appeals from the likes of David Harding of Winton Capital, John Armitage of Egerton Capital and Crispin Odey of Odey Asset Management have added extra weight, with generous donations to the campaigns on either side of the debate.

But to what extent are these hedge fund heavyweights also taking trading positions on the outcome?

“They should set out how they are positioned,” Helen Goodman, a Labour lawmaker who sits on parliament’s influential Treasury Select Committee, told Reuters.

“The public should know who’s putting money into the different campaigns and why they might be doing that - because that will inform their view of the literature and information they get,” Goodman added.

While some hedge fund managers have donated to political parties in the past, their engagement in this campaign is noticeably higher than either at last year’s general election or 2014’s Scottish independence ballot.

But while large hedge fund investors are privy to a fund’s positions through regular communications, these details are only occasionally reported and few funds are willing to reveal whether the rhetoric of their leaders is reflected in their trading positions.

A Reuters survey of 32 British managers resulted in just three identifying a Brexit-specific bet, with the rest declining to specify how they were positioned as the information was not public and could negatively impact returns.

Data from the CFTC, however, shows aggregate hedge fund bets that the pound will fall against the dollar - a Brexit is expected to push sterling lower - are near a four-year high.

While official polls are still too close to call, betting odds on Thursday indicated the highest chance to date of Britain voting to stay in the EU, with the chances of a win for ‘in’ put as high as 83 percent.

THE SHORT OF IT

Electoral Commission data released last week shows Winton’s Harding, founder of the $30 billion systematic trading firm, as the biggest campaign donor in recent months with a 750,000 pound ($1.1 million) gift.

The Electoral Commission declined to comment on hedge fund donations to the referendum campaigns.

Harding says his “remain” stance has nothing to do with his fund’s trading positions and is critical of rivals who may have something to gain from a vote to leave, arguing that hedge funds are better off with Britain inside the EU.

“The romantic vision of Brexit might bring short-term gains to some hedge funds, but building a big business for the long term is easier in a bigger market,” he told Reuters.

On the other side of the argument is Savvas Savouri, a partner at $4 billion firm Toscafund, whose managers have a range of trading positions likely to change in value depending on the outcome.

However, Savouri says his stance is based on an economic view that Britain has more to gain from trading with faster-growing non-EU economies than with the bloc.

“There are nations around the world that dwarf the EU,” he told Reuters.

Veteran investor Odey, who also favours Brexit, has short positions - bets that stock prices will fall - on several British companies, although he declined to comment whether the vote was an influence on these trades.

Odey had 16 open ‘short’ positions above 0.5 percent of the target firm’s stock, the level requiring regulatory disclosure, at May 18, but eight were recently scaled back, regulatory data showed.

A fund’s long positions - bets a share price will rise - need to be disclosed when they hit 3 percent of a target firm’s stock and every percent above that, but there is no requirement for regulators to aggregate that information.

Marshall Wace, co-founded by Brexit supporter Paul Marshall, had 15 outstanding short bets on British stocks above the threshold and had added to 11 recently, filings showed. The fund declined to comment on its trading positions.

Several hedge fund managers told Reuters that the outcome of the vote is too uncertain for them to take positions aimed at making a profit from it, with one Brexit-supporting credit manager dismissing the idea of trading the outcome as “fanciful”.

“We think we know where our risks lie with regard to Brexit and we manage those risks, but it’s not a fundamental trade we have on,” the London-based manager said.

($1 = 0.6913 pounds)

Additional reporting by Guy Faulconbridge; Editing by Sinead Cruise and Alexander Smith

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