Brevan Howard continues to struggle this year. The London-based hedge fund giant made a little less than 1 percent in August, the second straight month it has eked out a small gain. But it is still down for the year by 0.45 percent.
The results were reported by BH Macro, a listed feeder fund that invests its assets in Alan Howard’s Brevan Howard Master Fund. BH Macro’s assets are about $2 billion, compared with roughly $26 billion in the Master Fund. BH Macro’s returns closely track the Master Fund.
The Master Fund had posted double-digit gains in five of the previous six years, including 20.43 percent in 2008 when most hedge funds — and investors for that matter — suffered huge losses. It also gained 12.15 percent in 2011, a difficult year for hedge funds as well.
It is not clear which trades worked and which did not work in August. However, an August 22 report discussing first-half performance provides a glimpse into how the fund has been investing this year.
In the first half of 2012, “subdued trading conditions in the financial markets limited the opportunities for macroeconomic trading,” stated BH Global chairman Ian Plenderleith.
He explained that 2012 has played out as 2011 did — a strong beginning followed by a pullback later in the first half, mostly due to the changing environment within the euro zone as weakness in the Spanish banking sector and uncertainty over elections in Greece became more apparent. Also, the U.S. economy started to show more signs of weakness.
At the same time Plenderleith said it became increasingly apparent that economies in China and India were weakening and the U.K. had moved back into recession.
“As equities gave up their earlier gains, activity in all the main markets became subdued and range-bound, lacking any sustainable sense of direction,” the BH chairman stated.
The fund was able to eke out a 0.79 percent gain in the first quarter of the year but lost money in the second half, ending the six-month period down about 3.74 percent. “Disciplined risk management served to limit the downside, and positive performance in July partly reversed this decline,” Plenderleith added. “On a longer perspective, the company has continued to achieve strong returns with low volatility.”
When the fund made 2.30 percent in July, it said gains predominantly came from trading interest rate contracts, mainly from directional positions on the euro rates curve and, to a lesser extent, on the U.S. dollar rates curve. The fund also benefited from a long exposure to interest rate volatility, particularly in sterling, the firm stated, adding that modest gains were generated in foreign exchange and in credit positions.
