Billionaire Hedge Fund Manager Having the Worst Year of His CareerBy and
Brevan Howard faces at least $1 billion of client withdrawals
Firm is experimenting with AI, to start fund services in 2018
Billionaire Alan Howard may be having the worst year of his career as a hedge-fund manager, but the 54-year-old isn’t ready to throw in the towel.
His firm, Brevan Howard Asset Management, is bracing for at least $1 billion of client withdrawals at the end of the month, as its main fund heads for a record annual loss, according to a person with knowledge of the matter. That caused some investors to wonder if Howard will follow others in the industry by returning capital to clients, said two other people, who asked not to be identified discussing the company’s affairs.
That’s not going to happen, said Anthony Payne, a spokesman for the macro hedge fund, adding there are no plans to convert the firm into a family office. He declined to make any further comments. The company had $10 billion under management at the end of October.
Brevan Howard, once one of the world’s largest hedge funds, has seen its assets plunge by three quarters from its $40 billion peak as investors deserted Howard as he struggled to navigate markets. In a bid to turn things around, the no-nonsense, fast-talking trader has started his own fund to make riskier bets and allowed his top managers to run their own pools again in a strategy u-turn. Howard is also experimenting with artificial intelligence and is planning a fund-services business.
“Before the financial crisis, when you invested in Brevan Howard, you were buying Alan,” said Cedric Fontanille, head of external strategies at Unigestion Holding SA. “But given how poorly he and other macro managers have done in recent years, funds like his need to diversify their businesses, regardless of whether the markets come back or not,” said Fontanille, whose company invests in hedge funds.
It’s been a bruising year for the money manager. Investors pulled an estimated $5.4 billion from Brevan Howard’s main fund this year through October, according to Bloomberg News calculations based on the firm’s investor letters. That fund has lost 5.4 percent in the first 11 months of the year -- compared with average gains of 3 percent by its peers -- and is on course for its worst ever annual performance since Howard founded the firm with colleagues from Credit Suisse Group AG in 2002.
"I can understand managing equity hedge funds is a nightmare, because anything you hedge has just been a mistake in a bull market," said Richard Watkins, chief executive officer of Alternative Asset Solutions. “Losing money on macro trades is much less forgivable." Watkins’s company has helped clients invest more than $10 billion in hedge funds and other money pools.
A cohort of money managers have struggled this year. John Griffin, who founded Blue Ridge Capital 21 years ago, told clients Friday that he was closing his firm after a few challenging years. Billionaire investor Stan Druckenmiller, who boasts the best record in macro trading, this week said he’s had his worst year relative to market opportunities. Caxton Associates’ Andrew Law has lost a record 12.8 percent so far this year, while losses in markets have in the past two weeks forced John Burbank to close his macro fund and Neil Chriss to liquidate his firm.
“Do I think global macro funds will be a force in the markets like they were before the financial crisis? No,” said Nicola Ralston, co-founder of PiRho Investment Consulting in London that advises clients including pension plans on investing. “Investors are migrating to cheaper and easier-to-access products that use similar strategies to macro funds.”
Howard, who forged his reputation as an interest-rates trader, in March started his own fund, which is designed to be very volatile to achieve bigger profits. The AH Master Fund posted single-digit losses in its first few months of trading, the people said. The pool has about 10 investors and manages Howard’s own money, as well as some of Brevan Howard’s main pool, another person said.
Howard isn’t alone in taking matters more into his own hands. Andrew Law of Caxton Associates plans to start a fund in January that will also make riskier bets than he did before, while Paul Tudor Jones this month said he’s going to manage most of the money at his Tudor Investment Corp.
As its fee-revenue dwindles, Brevan Howard plans to offer fund services to other money managers, family offices and banks, putting to use infrastructure that once supported billions of dollars in assets. The initiative, led by Chief Operating Officer Jev Mehmet, would involve offering functions such as trade support and compliance, one of the people said. Brevan Howard also gets revenue from its stakes in other hedge funds run by Ari Bergmann and former employees Chris Rokos and David Warren.
Brevan Howard is also starting a slew of single-strategy pools that trade markets including interest rates, volatility and Greek stocks in an attempt to retain its best-performing managers and become less dependent on its main fund. Alfredo Saitta opened his fund this year, while the firm’s co-founder Trifon Natsis is set to begin two money pools in 2018. The offerings come after the firm liquidated more than half a dozen funds in the three years through 2015, saying running multiple pools was a distraction.
Howard, who in August returned to his home town of London after spending more than seven years in Geneva, wants to keep the assets in the firm’s main fund at less than $10 billion, the person said. They’ve slumped almost 80 percent since 2013 to about $6 billion as of the end of October.
The company has joined other funds seeking to adopt AI for trading. It invested in SparkCognition, a Texas-based tech firm that counts Alphabet Inc.’s Google as one of its partners, according to the firm’s website. Brevan Howard hasn’t yet applied the technology for trading, the people said.
Howard has been beset by a spate of difficulties since at least 2012. Rokos, a co-founder and top-performing trader, left that year after losses.
The firm posted its first annual decline in 2014 and lost money again the following year. And investors pulled $7 billion from the firm in 2016, even as it eked out a 3 percent gain, a trend that for now shows no sign of ending.