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Firms accused of “banking on Brexit” count their losses

8 Nov 2019

Investors accused of betting on the outcome of the Brexit process are reporting red figures.

Long-short investors and currency traders attracted a lot of negative publicity over the past month, facing growing accusations that their short positions against UK-listed firms and the pound were attempts of “banking on Brexit”.

Politicians from both sides of the political spectrum pointed out the apparent conflict of interest for asset managers such as Odey Asset Management, which holds significant short bets against UK firms exposed to Brexit risks, while its founding partner Crispin Odey is also a prominent donor for the Vote Leave campaign.

Critics of this argument point out that the evidence that short positions are motivated by Brexit is scant, most hedge funds base their positions on quant strategies rather than geopolitical macro strategies. Consequently, most of their biggest short bets, from Thomas Cook to Debenhams are firms that were facing challenges regardless of the Brexit outcome.

Moreover, one of the biggest hedge funds accused of banking on Brexit, Marshall Wace, is jointly run by a pro-Brexit (Paul Marshall) and a remain advocate (Ian Wace).

Another argument that has been missing from the debate is the fact that many of the biggest hedge funds accused of banking on Brexit have indeed faced their own financial problems, illustrative of the broader challenges of long-short investing.

Odey Asset Management’s earnings fell by 72% between 2017 and 2018, resulting in an earnings drop of £4m, the firm disclosed. In September alone, it’s European fund lost 12.7% of its assets, year to date it fell by 18.1%.

Similarly, AQR Capital Management, an investment manager, faces significant outflows in its long-short strategies. Its Multi-Strategy Alternatives fund performed -9.48% year to date, while its equity market neutral fund is down -8.83%, year to date.

Ironically, if those hedge funds were listed on the stock exchange, as some asset managers are, they might well be holding short bets against each other.

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