"Out, out, out!" Election night in Putney, 1 May 1997. For a man who garnered only 1,518 votes – and lost his £500 deposit – Sir James Goldsmith looks very smug. Delighted to have helped unseat David Mellor, swinging Putney from Conservative to Labour, the maverick financier joins in the crowd’s chant of "Out, out, out!", pointing and laughing at Mellor. The enraged former MP tells Sir James: "You can get off back to Mexico knowing that your attempt to buy the British political system has failed. Up your hacienda."
This was one takeover financier Goldsmith never completed – he died, a few weeks later, of pancreatic cancer, and the Referendum Party, a product of his iron whim, effectively died with him. Though he never overpaid for an acquisition, he was happy to throw millions at a cause he believed in, like the Referendum Party. (One of its unsuccessful parliamentary candidates, Rupert Lowe, is now a Brexit Party MEP.) Nineteen years later, when the UK got the referendum on European Union he had desired, his widow Lady Annabel donated £25,000 to Vote Leave and his son Zac backed Brexit.
Goldsmith’s dream was finally realised because 17.4m Britons believed in the slogan, coined by Vote Leave strategist Dominic Cummings, that Brexit would help them take back control. Sometimes it was hard to define what that meant but one part of the UK could explain its loss of control in detail: the City. EU regulation on the financial sector had increased tenfold between 2005 and 2015, according to a British government report. As a former Lord Mayor of London put it: "Everyone in the City is a Eurosceptic except that some people want to stay in the EU and others want to leave."
The City moves in mysterious ways but it is not a monolith. Oliver Bullough, author of Moneyland, a bestselling exposé of global corruption, says the EU referendum exposed the tensions between productive capital – the established institutions which invest for the long term – and speculative capital, particularly hedge funds which live and die in the short term. "If you profit from volatility as hedge fund managers do, by supporting Brexit you are effectively creating a business opportunity for yourself. The greater the volatility, the greater the potential reward."
Many of the big institutions – such as Citigroup, Goldman Sachs and the City of London Corporation – supported Remain, as did some fund managers, notably David Harding. Many leading hedge fund financiers, including Sir Michael Hintze and Crispin Odey (see sidebar, p45) and David Lilley backed Leave, vocally and financially. Other fund managers – notably Dame Helena Morrissey at Newton Investment Management – argued that Brexit was the wake-up call the City badly needed.
There was less disagreement about Brexit among the City’s rank and file managers. "The official line is dictated from above. No one can deviate from it officially," one City banker told the German newspaper Handelsblatt in June 2016. "But over dinner, even top bankers will admit they are actually for Brexit."
Significant donors to the official Vote Leave campaign include Hintze, who donated £100,000, as did another hedge fund star, Paul Marshall. Lilley gave £150,000. Michael Farmer, the former Conservative treasurer who runs one of the biggest metals hedge funds in the world, spent £300,000.
Four financiers were especially generous: Jonathan Wood, founder of Monaco-based hedge fund SRM, donated £500,000; Odey (£873,000); private equity investor Jeremy Hosking (£1,691,296) and Peter Hargreaves, founder of financial services group Hargreaves Lansdown (£3.2m). Was this patriotism, or enlightened self-interest?
For Hargreaves, Brexit was a long overdue recognition of economic reality. As he told Bloomberg Brief: "The EU as an economic mark is declining in the world – when there were only nine countries in it, it was 30 per cent of the world’s GDP, now there are 28 it is only 17 per cent. That is some serious decline. We should be trading with other places that are growing – India, parts of Africa, Brazil, China, even Russia."
Hargreaves’ rationale has some logic – although the "serious decline" he cites is as much a reflection of global economic shifts as the European Union’s flaws – but how many Leavers, voters, leaders or donors share it?
"From conversations I’ve had, there are two main reasons people voted for Brexit," says Bullough. "For the vast majority of them, the motive was cultural – they were concerned about sovereignty, immigration and other changes in British society – but some saw it as an opportunity to make money."
To understand how much money, it is worth recapping how hedge funds do business. "At its simplest, a hedge is created when you make a bet and at the same time make a bet on the other side of the possible outcome," John Lanchester wrote in the New Yorker. You might put £10 on giant-killing Mansfield Town to beat Manchester United in the FA Cup and bet the same sum on United. Whatever happens, you will make money. Your profits increase if the more unlikely outcome occurs, which is why hedge funds stand to gain – and lose – millions.
Alfred Winslow Jones, a sociologist turned investment manager who effectively invented the hedge fund industry in 1949, relied on mathematical analyses to bet on whether stocks would go up or down. If you got it right, you made a fortune. Yet, as Lanchester notes, many funds no longer use that classic method: "A hedge fund, as the term is used today, refers to a lightly regulated pool of private capital, one that is almost always doing something exotic – because if it weren’t exotic the investors could benefit from the investment strategy much more cheaply somewhere else. There will be a ‘secret sauce’ of some sort, usually a complicated set of mathematical algorithms meant to ensure better returns than the market in general delivers."
You can’t join hedge funds, you have to be invited, which is one reason why, in the popular imagination, these managers are perceived as Bond villains. In reality, many of them provide capital to businesses that can’t find funds elsewhere. Fund managers like the word boutique – it suggests the customer is getting a deluxe service and justifies their charges (two per cent of the money invested and 20 per cent of the profit above an agreed benchmark). The paradoxical aspect of this model, Lanchester notes, is that "these funds typically aren’t hedged. Most hedge funds fail: their average life span is about five years."
Hedge fund managers are almost professionally obliged to run their business in line with John Maynard Keynes’ observation that "in the long run we are all dead". Luckily, the short run can be incredibly profitable. Before the EU referendum in June 2016, Odey moved 65 per cent of his fund into gold, sold stocks in companies he expected to be hit by the turbulence, and bet against the pound. The Evening Standard estimates his fund made a £220m profit the day after the result. He wasn’t the only one to gain: Leave-supporting Paul Marshall’s fund was up £8m. In Tokyo, Kyo Yamamoto, a 33-year-old manager with a computer algorithm coded to exploit the falling pound, increased his fund’s value by £3m. Some fund managers – including Hargreaves – are said to have lost money. Yet Brexit did prove, as Hintze said once: "Every crisis is a trading opportunity."
Seizing such opportunities, many hedge fund managers may have felt it might be easier outside the EU. Odey, who declined to comment for this article, insists his opposition to the EU predated the flood of regulations that followed the 2008 financial crash, saying: "There’s nothing scary for hedge funds per se from Brussels." That said, he is also on record as describing the future regulatory environment for investors within the EU as "terrifying". It’s difficult, too, to believe his views weren’t influenced by the EU directive that restricted the bonuses fund managers could earn.
Few companies want to be regulated. Most accept it as the price for doing business, yet, as a source close to the hedge fund industry told The Guardian: "They have a genuine conviction that all regulation is rubbish." Indeed, Nigel Farage, in a recent interview with Campaign, suggested that one reason he liked the advertising industry was that "it is not heavily regulated, which means you can make money". When Farage joined the City in the early 1980s, working on the London Metals Exchange, it felt like a gentleman’s club. The deregulation of the financial markets in 1986 – the Big Bang – changed some aspects of that culture but made the City significantly more profitable.
In the early 1990s, Farage became involved in a ‘save the pound’ campaign, which proved quite popular in his circle. (Cummings cut his teeth on this campaign under Conservative leader William Hague.) As one trader told the Financial Times: "If you want to find sympathy for his views, all you have to do is stand in the middle of the City of London and say: ‘Who thinks Brussels is a complete waste of time, money and effort?’ and you’ll get lots very quickly."
Hedge fund managers might have been particularly concerned about new EU regulations on tax avoidance and market abuse. The EU anti-tax avoidance directive was presented a month before David Cameron announced the referendum and officially adopted three days before the UK voted to Leave.
Two weeks after the vote, the EU’s Market Abuse Regulations, a standardised pan-European regime for dealing with market manipulation and insider dealing came into force. Although the goal – to protect the integrity of stock markets – was uncontroversial, the regulations were opaque even by the EU’s standards and, in May 2018, the Law Society tried to clarify matters by offering guidance on 44 – count ’em! – frequently asked questions.
In such circumstances, it wasn’t much of a mental leap for alternative investors to decide that what was good for them, as wealth creators, was good for the country. The Alternative Investment Management Association, which also declined to comment for this article, estimates that the British hedge fund sector employs 40,000 people, generates £3.9bn in tax revenues, manages assets worth £335bn and, crucially, manages 85 per cent of Europe’s hedge fund assets. Some fund managers say, off the record, that EU regulations favour the big German and French banks and penalise alternative investments, where the UK has a clear competitive edge. One analysis by The Independent suggests that scrapping EU regulations could save the industry around £250m a year.
Roots of dissension
After the UK voted – by more than two to one – to join the European Economic Community in 1975, Euroscepticism was largely confined to the lunatic fringe of British politics – and Enoch Powell. That changed in September 1988. As leader of the opposition, Margaret Thatcher had supported entering Europe when it was a market. As prime minister, she took umbrage at EU president Jacques Delors’ insistence on the "social dimension of Europe". In a blunt speech at the College of Europe in Bruges, Thatcher warned: "To try to suppress nationhood and concentrate power at the centre of a European conglomerate would be highly damaging and would jeopardise the objectives we seek to achieve."
She was forced out of office in 1990 but her words inspired Alan Sked, an economist at the London School of Economics, to found the Anti-Federalist League. John Major’s struggle to steer the Maastricht Treaty through parliament ignited an uncivil war within the Conservative Party. Thatcher’s last vote as an MP was to lead an unsuccessful rebellion demanding a referendum over Maastricht. One of her awestruck admirers, Farage, quit the Conservative Party in disgust.
That same year, Tory MP Michael Spicer founded the European Research Group. The name is misleadingly neutral. The group was not formed to research how brilliant the EU was. ERG’s subscribers have included Sajid Javid (head of credit trading, equity convertibles, commodities and private equity for Deutsche Bank in Asia); Bernard Jenkin (manager at private equity firm 3i); Andrea Leadsom (investment banker at Barclays de Zoete Wedd); Tim Loughton (fund manager at Robert Fleming); Jacob Rees-Mogg (who founded Somerset Capital Management in 2007, with some help from Odey, resigning recently when he joined the government) and Bill Wiggin (foreign exchange manager at Commerzbank).
If you chart the vast and confusing network of organisations opposed to the EU – and they include the Anti-Federalist League, Better Off Out, the Brexit Party, the Bruges Group, Business For Britain, Business For Sterling, Campaign for an Independent Britain, Change Britain, Grassroots Out, the ERG, Ladies For Leave, Leave Means Leave, Leave.EU, the Referendum Party, UKIP and Vote Leave – the pattern repeats itself.
In September 1993, Sked’s Anti-Federalist League was rebranded as the United Kingdom Independence Party, with Farage as a founder member. Although the new party had hoped to recruit Powell, it was starved of the oxygen of publicity because the media preferred to chronicle the antics of Eurosceptic Conservatives and Goldsmith’s Referendum Party, which won fewer than 900,000 votes and no seats at the 1997 general election.
The rise of UKIP
The demise of the Referendum Party created a space on the Eurosceptic right for UKIP to attract followers, donors and publicity. Farage’s election to the European Parliament in 1999 was a harbinger of things to come. It didn’t happen overnight but if we fast forward to 2014, we find UKIP attracting more than £3m in funds. Paul Sykes, the retail and property magnate, and Arron Banks, through his company Rock Services, donated £1m each. (Banks had only intended to give £100,000 but decided to be more generous after hearing foreign secretary William Hague describe him as a "nobody".)
Among the other benefactors was Stuart Wheeler, financier and boss of spread betting firm IG Index, donating £199,500. Wheeler had been a significant source of funds since 2009 when the Conservative Party expelled him for giving £100,000 to UKIP. Christopher Mills, the boss of hedge funds Growth Financial Services and Harwood Wealth Management, donated £85,000, becoming so committed to the cause that he has served as UKIP’s deputy treasurer and spokesman on business, trade and industrial strategy. Chipping in with £200,000 was nightclub owner Robin Birley, Lady Annabel Goldsmith’s son (from another marriage), half-brother of Brexit-backing Tory MP Zac Goldsmith.
Insisting that leaving the EU is "not Armageddon", Mills argued before the referendum: "Large multinational companies urging us to stay are the principal beneficiaries of low wages driven by immigrant labour. In a world where growth is at best modest, companies are increasing profit margins by driving down the cost of labour. Lower costs are not passed on to consumers but the CEOs of large multinationals get massive pay rises." For a man who is worth £200m – the Sunday Times estimates – this is radical stuff.
Birley told the Financial Times in September 2016: "I’m optimistic about Brexit. I don’t think the impact will be that bad. It utterly depends on what we do with the economy here. If we make it less regulated, freer, with lower taxes, it will attract more people to the UK." However, as the owner of Mayfair club 5 Hertford Street, he has faced issues: the Independent Workers Union of Great Britain has accused the club of victimising migrant kitchen porters who campaigned for a raise. The union says the porters are paid £8.65 an hour.
Freedom is a conveniently amorphous term that can be applied to anything from human rights to a completely unregulated economy. The latter prospect seems to tantalise some Leave-supporters in business. Howard Shore, chairman of Shore Capital, which donated £25,000 to Vote Leave (and is now advised by Matthew Elliott, who helped mastermind that campaign), has asked: "Do we deregulate and become the Hong Kong or Singapore of Europe?" Shore’s brother Graham, usually known as Barry, stood, unsuccessfully, for the Brexit Party in the European elections in June.
The Brexit Party itself is steeped in the City. It is registered as a company, not a political party, which, Farage told Campaign, he owns 60 per cent of. Yet Farage, who worked in the City, as his father did and one of his sons, didn’t register it at Companies House – Catherine Blaiklock, a former derivatives trader with Merrill Lynch, did that before admitting: "I’m happy to facilitate Nigel and do the donkey work for him, but I don’t have any illusions about myself."
Among those who did get elected on the Brexit Party ticket are Rupert Lowe, the controversial former owner of Southampton football club, who made his name at Morgan Grenfell, Deutsche Bank and on the London International Financial Futures Exchange; Robert Rowland, founder of the Bowdon Capital hedge fund who has managed investments for Odey; Jake Pugh, an investment banker turned strategic consultant; Alexandra Phillips, formerly of Cambridge Analytica (run by Alexander Nix, who started out in corporate finance) and Annunziata Rees-Mogg, sister of Jacob, a former hedge fund manager who carefully cultivates his image as the "honourable member for the 18th century".
As the American writer HL Mencken wrote: "For every complex problem there is a solution that is clear, simple and wrong." It has been suggested, by one former 10 Downing Street insider, that Brexit has more to do with the fact that so many leaders in Britain – in business, politics and government – went to the same schools, studied at the same universities, belong to the same social elite and share the same views. That is certainly true to a degree – almost two-thirds of Johnson’s government went to private schools. Yet the list of companies and people that have donated money to the new prime minister Boris Johnson in the past year makes an intriguing read.
It comes as no great shock to see Robin Birley (£20,000), Crispin Odey (£10,000) and Peter Cruddas (£50,000) on the list. Yet according to Johnson’s register of interests, the following hedge fund managers and alternative investors have also made significant donations: Jonathan Moynihan, Ipex Capital, £100,000; Jon Wood, SRM Global, £75,000; James Reuben, Melbury Capital, £60,000; Johan Christofferson, Christofferson, Robb & Co, £38,000; Hazem Ben Gacem, Investcorp £25,000; and Lilley £15,000.
The smaller donors include: Jamie Diner of DSAM; Philip Gibbs (formerly of Jupiter); Ami Bhatia of Swordfish Investments and retail investment firm Killik & Co (who all gave £10,000) and asset manager Charles Montanaro (£8,000). The most amusing donation is from Mohamed Amersi, a hedge fund specialist in emerging markets, who hedged his bets in classic style by giving £10,000 each to Johnson, Michael Gove, Jeremy Hunt and Rory Stewart.
Taking back control
Money and politics have had a long, complex and often grubby relationship in Britain. In principle, the largesse shown to the Brexit cause by a group of financiers is hardly novel but, given what’s at stake for the UK socially, economically and politically, it seems legitimate to ask, in this instance, who exactly is taking back control?
Johnson’s ruthless chief of staff Cummings would certainly like to think he was in control. Bullough is sceptical: "There is a rich tradition of Conservative ideologues, like Cummings, who think they are transforming society when they are actually doing the bidding of some clever financiers and never ask themselves what these people are getting out of it."
The idea of Cummings’ boss as a fearless anti-establishment rebel has always been implausible – he is the 20th prime minister to go to Eton and the fourth from Balliol College Oxford – and he didn’t sound very rebellious campaigning for the Tory leadership in June. Trying to bury the controversy caused by his offhand remark "Fuck business!" Johnson told an audience in Birmingham: "I can’t give you any other politician, even a Conservative politician, who, from the 2008 crash onwards, actually stuck up for the bankers. Can you think of anybody who stuck up for the bankers as much as I did? I defended them, day in, day out, against those who frankly wanted to hang them from the nearest lamppost."
Brexit has been hailed as a triumphant expression of the people’s will against a wealthy, metropolitan establishment. There is some truth in that narrative. Yet it is also true that Brexit expressed the will of many financiers who spent lavishly to make it happen.