Ashley Madison shows financial risk of backing dubious enterprises

Written by Rebecca O'Connor on 29th Jul 2015

It was not just the 37 million or so cheating spouses using Ashley Madison who were left in a cold sweat when news broke that the “Impact Team” of hackers had obtained their personal information.

So too were any bankers, executives, lawyers and prospective investors, who had been considering involvement in a proposed London Stock Exchange listing to raise $200 million by the end of 2015.

The reputational risk of a listing in the parent company’s home country, Canada, was considered too high for it to be viable, so it turned to Europe, with its lax morals, instead (doesn’t it make you proud?).

Could a London listing still go ahead? It is possible. For where there is money to be made, being liberal can be a fine excuse to indirectly support activities we would advise our children against, and there are always those willing to take on such reputational risk for the sake of higher returns.

And infidelity is one profitable business. Who are we to say someone can’t have an affair? Well, indeed, it is ultimately someone’s personal decision. Except that Avid Life Media, Ashley Madison’s owner, actively encouraged and facilitated it, normalising through a sense of community what we would otherwise prefer was an exception to the rule.

However, at the time the notion of a float first surfaced back in April, UK bankers distanced themselves: “investment bankers have discovered an ethical red line they will not cross”, said this story in The Times, which suggests the company, ironically now enjoying a PR boost from the hack, would struggle to coral the necessary entourage.

For the sake of argument, should Ashley Madison wrap up this incident and like the most forgiving spouse, move on, the listing could still go ahead. With an estimated valuation of $1 billion, the company would probably enter the FTSE 250. As such, any tracker fund linked to the FTSE 250 would be invested in it.

Investing in tracker funds is a way of diversifying across a range of sectors and removing some risk. However, this diversity also makes it very difficult for conscious investors to keep track of whether what they are investing in agrees with their principles (see our blog on “the wall”). And as the Ashley Madison example demonstrates, investing in a tracker fund linked to the FTSE-250 – that’s 250 mostly mid-cap (mid-capitalisation) companies – means there can always be a few bad apples. Not only might we feel icky about supporting these bad apples, they might also present a risk to our money. Imagine if the company does list, and is hacked again, bringing its value down overnight and also reducing the value of your shareholding in it. Immorality is, generally, a risky business, with financial consequences for those supporting it.

Many of us were utterly horrified by the Ashley Madison story. Imagine investing in it without realising. So if you want to maintain a bit of moral control over your investment portfolio and avoid being exposed to disagreeable companies, then watch out for the trackers  – and what exactly it is that they track.

Where is your ethical red line when it comes to money? Tell us @goodmoneygirl, we’d love to know.