Alan Howard Predicts ‘Exceptional’ Trading Opportunity

  • Slowdown may make it hard for central banks to support markets
  • Says divergent policy to `materially' improve opportunities

Billionaire hedge fund manager Alan Howard says there will be “exceptional opportunities” to make money in 2016 because of divergent monetary policies and as four years of low market volatility comes to an end.

A slowdown in global growth appears to be accelerating and if the trend continues central banks could find it increasingly difficult to support capital markets, Howard, 52, wrote in a letter to shareholders in BH Macro Ltd., a listed fund that invests in Brevan Howard Asset Management’s main macro hedge fund.

“Some exceptional opportunities are likely to present themselves in this environment of regime shift and dislocation," Howard said in the letter released Friday.

Investors began allocating more money to macro hedge funds last year, ahead of the U.S. Federal Reserve’s December rate hike which created more trading opportunities for the money pools. A net $33.6 billion was allocated in 2015 to macro funds and mathematical models that use economic trends and volatility to bet across asset classes, compared with $30 billion of net withdrawals a year earlier, according to Eurekahedge.

2015 Loss

Brevan Howard’s flagship master fund suffered a record monthly loss in December as markets were roiled after the European Central Bank announced a smaller-than-expected stimulus package. The fund ended the year down 2 percent, its second successive annual decline, a person familiar with the matter said this month.

"We knew that the amount of risk we took into the ECB December meeting was high, but our conviction was very strong and the fund’s positions were structured in such a way that the potential gains on a positive outcome would have been far greater than the amount that was eventually lost in December," Howard said.

The Brevan Howard Master Fund dropped 3.9 percent last month, exceeding the fund’s previous record monthly drop of 3.2 percent in September 2008, a person familiar with the matter said in January.

Divergent policy

Howard, who founded the firm that in November managed about $25 billion, said China faces a difficult task managing its exchange rate depreciation and, at the same time, providing stimulus to prop up its economy.

The U.S. Federal Reserve increasing borrowing costs presents trading opportunities at a time the ECB and the Bank of Japan, among others, have room to further cut rates, he wrote. It would require the risk of a "true crisis" to make the Fed reverse its course quickly, according to Howard.

“The central bank policy divergence that we have been anticipating for over a year has now finally arrived and I am confident that this will materially improve the opportunity set for us," he said.