Brevan’s U-Turn Gives Its Star Traders Chance to Run Funds AgainBy
Howard, directly running fund, and Natsis return to London
Firm had shuttered pools to focus on the shrinking Master Fund
Brevan Howard Asset Management LLP is giving star traders their own funds again, aiming to stall an investor exodus as its flagship investment pool shrinks.
Less than two years ago, one of the hedge-fund manager’s top executives said having multiple funds was a “distraction.” Yet, the firm started a fund directly managed by billionaire founder Alan Howard in March, and is preparing a new macro fund run by Alfredo Saitta and two analysts for launch in the fourth quarter, people with knowledge of the plan said earlier this year.
Howard, who was said to have moved back to London last month for family reasons after more than seven years in Geneva, is trying to reboot a firm whose assets shrank to less than $12 billion from a peak of $40 billion in 2013. More new funds are planned by the firm, focusing on macroeconomic events amid speculation that a rising interest-rate environment, a long time in coming, will result in more lucrative trading.
“The advantage of launching funds managed by star traders rather than multi-strategy funds is the purity of the strategy and the identification of talent and skills,” said Jacob Schmidt, chief investment analyst at NLP Financial Management, which invests in hedge funds. “In the current stage of the market, most allocators prefer visibility -- transparency rather than mish-mash."
A spokesman for Brevan declined to comment.
Brevan shuttered more than half a dozen hedge funds in the three years through 2015 to focus on the flagship Master Fund, which this year suffered its worst first-half decline since it began trading in 2003. Though it has recovered some of those losses, it has seen assets collapse about 74 percent from their peak to about $7.2 billion at the end of July, according to an investor letter.
Another Brevan co-founder, Trifon Natsis, the "N" in the firm’s name, has recently followed Howard in returning to London from Geneva, according to a person with knowledge of the matter.
The Master Fund allocates capital to dozens of traders, with the thinking that such an arrangement reduces the “key man” risk if a fund is led by one individual. But in a world of lackluster returns, key men are back in vogue.
“Multi-portfolio manager hedge funds have lost their shine since quite a while, as performance has been somewhat lackluster," said Nicolas Roth, co-head of alternative assets at Geneva-based Reyl & Cie. “A number of high performers at those shops might be tempted to jump on the bandwagon and re-emerge on their own, or as portfolio managers of new funds within large shops, given the environment."
Brevan opened a securitized products fund, managed by Josh Bertman, to external investors in December last year. Giles Coppel, who left the money manager earlier this year, still runs an allocation for Brevan Howard Master Fund, according to a person with knowledge of the matter.
The firm’s flagship hedge fund made money each year since starting in 2003 through 2013. Howard bolstered his reputation in 2008, when the master fund returned 20 percent as the financial crisis wiped out trillions of dollars from global markets.
To bring back some of that cachet, in March, Howard, 53, started the Brevan Howard AH Master Fund, which was said to have had $700 million pledged by investors. Howard is personally managing a combination of new, outside capital as well as money from the flagship fund.
Amid pressure from investors on fees in the industry, the AH Master Fund ditched the traditional 2-and-20 structure, where the fund manager takes a management fee amounting to 2 percent of assets and 20 percent of the returns. Instead, Howard makes 30 percent of the returns, but charges only 0.75 percent of assets. Last year, Brevan stopped charging any management fees on new investments that existing clients made in the firm’s flagship Master Fund and a smaller multi strategy fund.
Geneva-based Saitta, who joined Brevan Howard in 2011, produced annualized gains of 12 percent on the money he managed for the master fund, while the securitized products fund run by Bertman returned 9.7 percent in the first seven months of 2017, the people said.
In an interview in November 2015, Nagi Kawkabani, Brevan Howard’s co-founder and senior trader, said running too many different funds was “a distraction." At the time, Kawkabani said rock-bottom interest rates had held down market turbulence, and that he was optimistic that rate hikes from the U.S. Federal Reserve would result in better trading opportunities.
Brevan isn’t the only firm to go back to its roots. Paul Tudor Jones, the legendary macro trader who has also seen clients defect, is turning to one of his top money managers, Dharmesh Maniyar, to start a macro hedge fund, his firm’s only current single-manager macro offering. Last year, Jones told investors that he will handle a greater chunk of their money and push his managers to take on more risk.
“It is unclear to us whether this U-turn will work if the matter of fees is not addressed,” said Philippe Ferreira, a strategist at Paris-based Lyxor Asset Management, which invests in hedge funds. “Competition for attracting assets is stiff.”