Brevan Howard Asset Management LLP, Europe’s second-largest hedge fund, hired 29-year-old Credit Suisse Group AG mortgage-bond trader Josh Bertman, according to four people with knowledge of the matter.
Bertman will start at Brevan Howard in New York after leaving Credit Suisse last month, said the people, who asked not to be identified because the move wasn’t public. In December, Forbes magazine named him one of the “30 under 30” year-olds to watch in finance for the “big revenue” he was generating for the Zurich-based lender.
Brevan Howard is hiring him as wagers on mortgages produce the industry’s best returns. Hedge funds focused on the market have gained 19 percent this year, compared with the industry’s average return of 1.1 percent, according to data compiled by Bloomberg. Traders are also defecting to investment firms as banks come under pressure from regulators and lawmakers to limit both cash bonuses and risk-taking.
The lure of hedge funds has become “even more acute,” according to Adam Zoia, chief executive officer of recruiting firm Glocap Search in New York. “It’s become more extreme in favor of the buy-side because so much more of the bankers’ compensation is getting deferred,” said Zoia, who helped compile the Forbes list with Ken Fisher of Fisher Investments and private-equity manager Thomas H. Lee.
Bertman declined to comment, as did Jack Grone, a spokesman for Credit Suisse, and Max Hilton, an outside spokesman for Brevan Howard at Peregrine Communications.
He joined Credit Suisse in 2005 from the Massachusetts Institute of Technology, according to regulatory records. At the bank, he specialized in so-called agency collateralized mortgage obligations, which are also called agency mortgage derivatives. Such CMOs are created by slicing up simpler, pass-through mortgage bonds with U.S. government backing.
Funds focused on mortgages have outperformed as the U.S. housing market rebounded, homeowner refinancing remained constrained after its slump since 2006 and the Federal Reserve expanded its purchases of government-backed debt, reducing yields. Returns in the $5.2 trillion market for government-backed mortgage bonds fluctuate with changes in benchmark yields, demand relative to Treasuries and the pace of refinancing among different sets of borrowers, which can reduce interest payments as securities get paid down faster.
Bertman was one of the most active traders in the CMO portion of the market, making money on bets such as interest-only slices backed by securities guaranteed by U.S.-owned Ginnie Mae, the people said.
Brevan Howard’s main fund is known for making wagers on interest rates, currencies and government debt based on the London-based firm’s view of global economic trends. The fund is up 1.1 percent this year, compared with the average 1.3 percent decline posted by other macro funds, data compiled by Bloomberg show.
A macro fund might be interested in such a trader from a bank to decide how to use the “very complex” securities to wager on bigger trends, Zoia said. Alternatively, it might want to pair the “micro with macro” and make more targeted bets that reflect its broader views, he said.
Alan Howard, 49, started the firm a decade ago with four other fixed-income traders from Credit Suisse. It oversees $39 billion, and has been expanding its focus on trading corporate notes and asset-backed debt such as mortgage bonds.
Wayne Leslie last month left Goldman Sachs Group Inc. as head of European investment-grade trading to join Brevan Howard. The hedge fund also started a fund to buy commercial-mortgage-backed securities, securing backing from the Pennsylvania School Employees’ Retirement System.
Brevan Howard formed another fund in March to invest in mortgage securities and collateralized debt obligations tied to real estate. That pool is run by former Morgan Stanley head of structured credit David Warren, who has overseen a separate Brevan Howard credit hedge fund since 2009.
Warren’s DW Investment Management hired Sean Macleod from hedge fund Metacapital Management LLC this year to add bets on agency mortgage debt to its wagers in the $1 trillion market for home-loan bonds without government backing, people familiar with the matter said in July. Bertman will work directly for Brevan Howard rather than Warren’s operation, the people said.
Deepak Narula’s Metacapital gained 37 percent in his main, mortgage-focused fund through October, according to a person briefed on the results, who asked not to be identified because the information isn’t public. Narula oversees $1.4 billion after returning investors’ capital five years ago as soaring defaults on subprime loans roiled the market.
Michael De Asla, 43, previously an agency mortgage trader at Bank of America Corp., recently left the lender to join New York-based Metacapital, the firm said in a letter to investors last month.