
The Brexit Short: How Hedge Funds Used Private Polls to Make Millions - petethomas
https://www.bloomberg.com/news/features/2018-06-25/brexit-big-short-how-pollsters-helped-hedge-funds-beat-the-crash
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weliketocode
This seems pretty fine to me.

Laws forbade publishing exit pools until 10pm, so hedge funds conducted their
own research independently to have better information.

That's kind of how it is _supposed_ to work.

Bad laws/regulations preventing accurate information dissemination lead to
financial incentives for those with the most accurate/up-to-date data.

I know HN isn't the most Hedge Fund friendly forum, but surely there's an
appreciation here for these funds' efficiency and ability to seize
opportunity.

~~~
pluma
I guess you mean "fine" as in "legal", not "fine" as in "ethically
unobjectionable".

~~~
umanwizard
What is ethically objectionable about rich people gambling against other rich
people, and some of them winning? It's not like these funds stole money
directly from normal people.

~~~
mruts
In fact the money probably benefited some normal people. Tons of university
endowments, sovereign wealth funds, and pension funds invest in hedge funds.

~~~
ben_w
Given where the money they won comes from, surely an equal value (plus
overhead) was lost by similar organisations?

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projectramo
I guess I'll ask the question: in the US, insider trading is (generally)
trading on material non-public information. There are other nuances (various
courts have found there needs to be a benefit or not and so on).

Is the law similar in the UK?

Does it even exist for currencies? Presumably not because there is no company
to be the insider of?

~~~
pathseeker
>insider trading is (generally) trading on material non-public information

No, this isn't how it's defined in the US. It's completely legal to trade on
material non-public information that you collect on your own via research
(e.g. satellites looking at retail parking lots).

In the US, it's only illegal if you use information to trade that violates a
fiduciary duty (e.g. using non-public information from a CEO).

~~~
projectramo
I have to admit I am confused on this point.

I thought there was one theory that owning the stock makes one an insider
because you are an owner.

I find people worried and thinking about this all over the web:

[https://www.ibtimes.com/should-hedge-funds-be-concerned-
abou...](https://www.ibtimes.com/should-hedge-funds-be-concerned-about-
insider-trading-alternative-data-2602756)

~~~
jmalicki
I think you're misunderstanding their theory of why it would be bad?

In the example where a hedge fund buys information from Best Buy about how
many Panasonic TVs they sell, Best Buy may have a duty to Panasonic, and thus
are an insider in that context, so if the hedge fund buys that data from Best
Buy, they could potentially be trading on insider information.

It's not because they own the stock.

~~~
projectramo
On rereading, that sounds right.

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TheBeardKing
The problem I see with companies selling private polls, is there's an
incentive to release less accurate public polls. Why give away the good info
for free, when the more accurate info is worth tons of money? A company
wouldn't necessarily need to falsify the polling data, just poll less
rigorously to produce a misleading result. Could current oversight prove that
they were being intentionally misleading? Producing private results which
counter the public results would make for very good business.

~~~
Aloisius
They'd only harm their reputation and ability to gain new clients.

There really is no need either. Early access to poll results and crosstab data
excluded from public results is still extremely valuable.

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jackschultz
I always find cases like this really interesting, how predicting outcomes can
lead to tons of success in markets. Political events like this are big money
winners if you can predict the answer. Same with elections themselves for the
affects of the person's plans.

Besides polling data, prediction markets always seem like the could be a
legitimate way to guess results. I used to work at a place that ran those, but
biggest problem is to make sure the members are committed to answering the
questions and learning more about the situation. There's been proof that these
cases can be successful.

Another event that comes up is company's quarterly reports that lead to giant
price changes in their stock instantly. There are "specialist" predictions out
there, but having better guesses leads to straight money. Knowledge of those
numbers would be huge for traders, and us non-traders alike. Finding some
legal and respectable way to predict these big outcomes would be incredibly
valuable. Then again, if there was a correct way to make predictions, we
wouldn't be having these discussions.

~~~
lordnacho
As someone who's stared at market news announcements for years, it's not that
easy, even with the data. I've never traded on insider info (and neither
should you!) but even when I had it, I didn't think it was that obvious which
way things would go.

Often the market moves the opposite way of what you'd think, given the news.
Any these can be reasonable:

"Rates went up, and that means firms will have a hard time borrowing, which
lowers investment spending"

"Rates went up, but the market (risk assets) also went up because it's a sign
the economy is healthy"

"Earnings were up, but people were hoping for a surprise"

The other entertaining one is when a CEO gets fired because of bad
performance, and the price shoots up. Oh, the ignominy.

~~~
soVeryTired
Don't forget "Rates went up, but the central bank struck a dovish tone so
bonds rallied". Blegh.

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willyt
I wonder if they continue to make money on the currency markets by getting
advance inside information on what politicians will announce next? Quite a few
Conservative party politicians either own hedge funds, have worked for them,
or have family and friends with connections that would allow the free flow of
advance information. Rees Mog is a partner in a hedge fund, it would be
interesting to see his what's app chat history...

~~~
chatmasta
Fun fact: In the US, members of congress are legally exempt from insider
trading rules!

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jv22222
It’s been explained to me a number of times but I still don’t get it.

How does a short actually work?

The part I don’t get is, how do you actually get out of the position and make
the money?

~~~
88
Borrow shares, sell them, buy them back later (at a lower price, if all goes
well), then return them.

~~~
TheBeardKing
What's the motivation of sharedholders to lend shares?

~~~
lucozade
Let's say you're a manager at an index tracking pension fund. You're likely to
be holding shares in the index at a proportion similar to the index
weightings. And you're likely to hold most of them for the long term as you're
required to track the index.

The key phrase is long term. It doesn't really matter to you whether or not a
particular share price goes up or down in the short term as you aren't
interested in selling.

So what you can do is lend the stock to a shorter. You enter into a contract
where you give them X shares of a stock and they're obliged to give you X
shares back in a few days regardless of any price move. They're also obliged
to pay a fee for the service.

The net effect is that, instead of having X shares, you now have X shares and
the fee.

The major risk for you is that they don't give you the shares back. That's why
these contracts usually have collateral agreements such that, if they renege,
you haven't lost out by much.

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kristianc
So if private hedge funds had access to private polling data from YouGov which
suggested that the £ was going to crash, who was driving the £ towards a cliff
- and why would they not choose to have access to the same data?

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GreeniFi
The issue was that certain of the hedge funds were also funding Brexit
campaigning. I believe that was legal, but suspect it won’t remain so for
long.

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gammateam
I was short this in a simple buy the rumor sell the news strategy

The pound had become overvalued in a rally leading up to the vote, so I
shorted it on the vote being done with

I was at a company dinner with some now defunct startup and someone said “wow
the pound is down 10%”

I yelled YES! And the founders asked me if I just quit

~~~
GateCrasher
If I remember correctly the odds of brexit where like 48% but the pound was
valued for 100% chance of bremain. Don't need to be an hedge fund to see there
was a limited risk but big potential gain for this trade.

~~~
gammateam
or just sell the news. I was only looking for a 1 or 2% move.

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vaultcool
I really don't get how any of this would benefit the non-financial world in
any way, this hyper-capitalism is just wrong to me.

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jeremysalwen
Reading this article I can't help but have the Supermicro fiasco in the back
of my mind, making me question how accurate every detail is.

~~~
URSpider94
It’s an old story, from 6 months ago, which has been pretty well corroborated
by many other news channels since then. It’s good to be skeptical, but this
one is spot-on.

~~~
arethuza
Robert Peston covered it in his book _WTF?_ which is more than a year old.

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4ndrewl
This might have been a 'secret', but even at the time, as the words were
coming out of Farage's mouth, it was transparently obvious what was going on.
How is this even a story?

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yohann305
Conducting polls can be quite misleading. Remember the last US presidency
election polls? They were totally inaccurate* Hedge funds could have lost a
lot of money on this one.

*: [https://www.nytimes.com/2017/05/31/upshot/a-2016-review-why-...](https://www.nytimes.com/2017/05/31/upshot/a-2016-review-why-key-state-polls-were-wrong-about-trump.html)

~~~
antientropic
The polls were not that bad: [https://fivethirtyeight.com/features/the-polls-
are-all-right...](https://fivethirtyeight.com/features/the-polls-are-all-
right/). It's just that the outcome of US presidential elections can be
changed by relatively small shifts in a handful of swing states.

~~~
ng12
> relatively small shifts in a handful of swing states.

And if a poll doesn't reflect that reality then it's not a good poll.

~~~
rtkwe
They were pretty indicative though. Trump only outperformed the national poll
by 1-2 points and 2-3 points in the swing states. The whole 'polls are
garbage' story that came out of 2016 isn't really supported by the data if you
look at it.

The error has been pretty consistent forever, it's just hard to do a poll and
have it line up exactly with reality because a poll is a sample in time of the
thoughts of a subset that may not match who shows up. All of those factors go
into why polls miss; some populations are harder to reach than others, news
can come out between the poll and election day or bad weather could mess up
your turnout model by keeping a lot of people home.

[https://fivethirtyeight.com/features/the-polls-are-all-
right...](https://fivethirtyeight.com/features/the-polls-are-all-right/)

~~~
dragonwriter
> The whole 'polls are garbage' story that came out of 2016 isn't really
> supported by the data if you look at it.

There were a lot of garbage poll-based predictions (the Clinton 90+% ones)
based on assuming independence of polling errors. Predictions with claims of
quantified likelihood based on polls are a fairly recent media phenomenon, and
I think some of the legitimate reaction to how bad many of those were spilled
over into polls themselves, because people don't understand that the polls
weren't the source of the problem. (Which fed into existing political
narratives against polling; propaganda definitely played a role but there was
a real issue it interacted with.)

~~~
rtkwe
Yeah the use of the polls was the real failure in 2016. A narrative and
conventional wisdom bias set in to the analysis in a lot of places that
discounted close results in important states.

