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Billionaire Alan Howard's Star Traders Put Hedge Fund Back on Track

Billionaire Alan Howard's Star Traders Put Hedge Fund Back on Track
(David Watmough/Dreamstime)

Thursday, 07 November 2019 08:34 AM

In his investment firm’s darkest days, with performance sagging and billions of assets fleeing, Alan Howard was running out of options. So he turned to his top money managers for the fix.

It took two years, but the bleeding has stopped. Investors are beginning to return and his Brevan Howard Asset Management is headed toward a third decade as one of Europe’s most durable hedge fund shops. In the biggest executive suite change since its 2002 founding, Howard last week relinquished his management role to turn his full attention back to the rates trading that made him a billionaire; he named Chief Risk Officer Aron Landy chief executive.

Survival is no small feat in an industry going through a brutal slump that has driven some of Howard’s venerable competitors out of the business of managing other people’s money. Rebelling against mediocre returns and exorbitant fees, investors have pulled $77 billion from hedge funds this year alone, twice as much as in all of 2018, while closures have outnumbered launches since 2015.

At Jersey-based Brevan Howard, assets have dwindled to about $7.5 billion from more than $40 billion in 2013. But they’ve stabilized and the firm’s master fund recorded net inflows in September as well as May for the first time since May 2014, according to Bloomberg calculations. The firm’s assets hit a low of $6.3 billion in February.

“Redemption may be too strong of a word,” said John Culbertson, president and chief investment officer of Context Capital Partners. “But it’s certainly a comeback.”

Key to the turnaround has been the performance of the traders who have been running their own funds within the firm since 2017 -- after Howard was forced to cut fees and fire dozens of staff. The move marked a reversal as just two years earlier, the firm said running multiple funds was a distraction. Howard also started to offer fund services to other money managers, putting to use infrastructure that once supported many billions more.

Two of Brevan Howard’s funds stopped charging existing clients management fees on new investments in 2016, following peers such as Caxton Associates and Tudor Investment Corp. in trimming fees.

Now, Alfredo Saitta, who focuses on developed-market rates, and Minal Bathwal, who bets on Asia-focused rates and foreign exchange, are beating peers. Another fund managed by a group of risk takers has grown to a point where they are forced to control inflows. All of them also manage money for the firm’s main money pool, which is on track to beat peers for the second year in a row.

“Investors are interested, the funds are growing and the trader talent pool is expanding,” Brevan Howard’s Landy said in an e-mail. “I am excited about the future of the firm and where we are planning to go over the next few years.”

Saitta and Bathwal, also each manage just over a tenth of the Brevan Howard Master Fund’s $2.5 billion in assets apart from external money. They’re up more than 10% in their own funds before fees through September this year, according to an investor document.

The Brevan Howard Alpha Strategies fund, which started in September last year and is managed by almost two dozen traders, has grown to about $1.6 billion and the firm is now controlling the pace of inflows, according to people with knowledge of the matter. The fund is the biggest contributor to the firm’s main hedge fund, which was up 7.5% through September. Hedge funds gained on average 6.2% during the period, according to Bloomberg data.

In 2017, Howard started a fund he runs to make bigger bets to achieve higher profits. The pool, which charges 0.75% for management and a 30% performance fee, has a limited number of investors and manages Howard’s own money, as well as some of Brevan Howard’s main fund. It made 30% last year.

“Any firm that raises hundreds of millions of dollars is clearly showing that the marketplace still has confidence in the brand,” said Don Steinbrugge, head of Agecroft Partners, which helps hedge funds gather assets. “It’s very difficult to raise money today.”

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The bleeding has stopped at Brevan Howard Asset Management.
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2019-34-07
Thursday, 07 November 2019 08:34 AM
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