Alan Howard’s massive Brevan Howard Master Fund suffered its worst year since its 2003 inception. The roughly $19 billion hedge fund finished the year up less than 1 percent (through December 23, 2010). The macro fund accounted for the bulk of the firm’s $27 billion in assets, which last year made it the UK’s largest hedge fund firm and the fourth largest in the world.
The fund muddled along all year and lost money in each of the final three months.
According to a shareholder report for BH Macro Ltd., a feeder fund investing in the Brevan Howard Master Fund, the Master Fund suffered losses in interest rates trading, mainly in directional trading strategies and to a lesser extent in curve trading strategies. These losses were partially offset by gains in LIBOR basis swaps, swap spreads and interest rate volatility trading. Further gains were also made in credit and commodity strategies, the report said.
In October, the fund said it suffered losses in interest rates trading strategies; mainly curve and directional trading strategies and to a lesser extent in LIBOR basis swap spreads, which were partially offset by small gains in swap spreads and in volatility. Further gains were also made in credit, it added.
On the other hand, when it made money last September, the fund enjoyed gains from interest rates, volatility, swap spreads, curve and directional trading strategies as well as in foreign exchange. Smaller profits were also made in equity, commodity and credit trading strategies while small losses were incurred in LIBOR/overnight rate spread trading.
Howard spent 20 years working at Credit Suisse and its predecessor companies, including First Boston as head of interest-rates derivatives trading. In 2002 Brevan Howard was spun out from Credit Suisse after chairman and CEO John Mack tried to cut his pay.
The Brevan name was created from the first letter of the last name of the other four founders: Jean-Philippe Blochet, Christopher Rokos, James Vernon and Trifon Natsis. Two years ago, Blochet said he would leave the firm he helped found after returning from a sabbatical. Last year he surfaced at rival Moore Capital.
Several years ago, Howard sold a 15 percent stake in the firm to Swiss Re.
In its seven full years of operation, the Master Fund generated double-digit returns in five of those years, including 2008 when it surged 21 percent while most global investors lost huge sums of money.
In September, Brevan Howard announced plans to open an economic research office in São Paulo, Brazil. The LatAm office will be headed by Mário Mesquita, formerly a Deputy Governor of the Brazilian Central Bank. The firm already has offices in the US, Europe and Asia.
Last year Howard moved to Geneva to work from the Geneva branch of Brevan Howard Investment Products Ltd. In its announcement at the time, the firm added that Howard would continue in his role as the principal risk taker in the Brevan Howard Master Fund and his capital allocation and risk limits, as well as his wider responsibilities in relation to BHMF, remained unchanged.
Why did Howard move? The announcement did not say and the firm won’t comment. The Financial Times reported that Howard is relocating for “lifestyle reasons,” noting that he and his wife, who is French, already own a house in Switzerland.
However, you can’t avoid the fact that just a few months earlier, Britain raised its top tax rate for the wealthiest citizens to 50 percent from 40 percent. Also, Britain was threatening to increase its regulation of the financial industry.