Brevan Howard Asset Management LLP, the hedge fund run by Alan Howard, may return about $2 billion to investors in the firm’s biggest fund to avoid growing so large that its performance suffers, said four people familiar with the matter.
The London-based firm’s Master Fund now oversees $26.9 billion and clients have said they want the fund to remain at about $25 billion, said the people, who asked not to be identified because the company is private. Assets rose after the hedge fund produced investment gains of 11 percent this year through August.
Brevan Howard joins hedge funds Caxton Associates LP, SAC Capital Management LLC and JAT Capital Management LP, which have told clients in recent months that they want to limit their size because they see fewer opportunities to make money.
“When the amount you are managing is above a certain threshold, what you are doing can be visible to other market participants,” said Jacob Schmidt, founder of Schmidt Research Partners Ltd., a London-based hedge-fund advisory firm. “You can also influence the market through your buying and selling.”
Caxton Associates, the $10 billion hedge fund run by Andrew Law, told its clients last week that it will restrict the amount of money it takes in. Steve Cohen’s $14 billion SAC Capital Management LLC decided earlier this year to close its biggest fund to new clients. The fund, which opened in 1992, had remained closed for its first 13 years before re-opening to investors in 2005.
John Thaler’s JAT Capital Management LP, with $2.5 billion, has decided to stop marketing its fund for the time being, and won’t be taking new investments beginning next month, according to two people familiar with the plans, who asked not to be identified because the information isn’t public. The New York- based fund has climbed 35 percent this year, the people said.
A spokesman for Brevan Howard confirmed the firm’s plans to return some money to investors, but declined to elaborate. The Master Fund is managed by Howard and a team of traders. A so- called macro fund, it invests in liquid assets, including currencies and interest rates, to try to profit from global economic trends.
Brevan Howard could pick and choose which clients get their money back, or it could return money to investors in the fund on a pro rata basis. The firm isn’t likely to make investors take withdrawals if they’ve shown a commitment to the hedge fund over a long period of time, such as those who haven’t submitted redemption requests, said one of the people.
6.2% August Gain
Brevan Howard has faced recurring questions about the size of the Master Fund from investors, and acknowledged the scrutiny in a November 2009 statement. At the time, Brevan Howard said it would recommend to the firm’s board of directors that money be returned to clients “if and when we sense that a fund cannot deliver an attractive return because of the size of its assets relative to market opportunities.”
The fund gained 6.2 percent in August, its best month since February 2008. The returns came in a month when hedge funds on average declined 1.6 percent, the industry’s worst performance since May 2010, according to data compiled by Bloomberg.
Brevan Howard has probably made money this year by wagering that the volatility of interest rates would rise because of uncertainty about the prospects for economic growth in the U.S. and Europe, according to a report by Tom Skinner, an analyst with JPMorgan Securities Ltd. in London. The Master Fund has also profited from a bet that the short-term lending rates between European banks, or Euribor, would decline, Skinner wrote in the Sept. 5 report.
Brevan Howard’s Master Fund gained 1 percent last year, 18.7 percent in 2009, 20.4 percent in 2008 and 25.2 percent in 2007, according to data compiled by Bloomberg.
Howard, 48, founded Brevan Howard in 2002 with four other traders from Credit Suisse Group AG’s proprietary fixed-income trading desk. James Vernon, the chief operating officer who represented the “V” in Brevan Howard’s name, decided in July to leave the firm. Jean-Philippe Blochet, who represented the “B” in the company’s name, left the company last year.