Alan Howard, whose hedge fund once managed $40 billion, is betting his time is better spent trading rather than running his firm.
Howard, 56, is relinquishing the role of CEO at his Brevan Howard Asset Management, passing that position to chief risk officer Aron Landy, the Jersey-based firm said Tuesday in a U.K. regulatory filing. Howard, who specializes in macro investing, will focus on his trading.
The move comes amid years of mediocre returns posted by hedge funds, prompting investors to pull money and demand lower fees. However, some macro hedge funds are rebounding as the U.S.-China trade war and geopolitical risks create a fertile hunting ground for traders like Howard.
“There is finally some movement in rates markets and potential for volatility, which is Alan Howard’s forte,” said Saleem Siddiqi, founder of Musst Investments, which provides capital to hedge funds. “If there was any time to get ready, it’s now.”
Investors have yanked about $77 billion this year alone from hedge funds worldwide, twice as much as in all of 2018, according to eVestment data. At Brevan Howard, assets have plunged to about $7 billion at the end of September from their peak in 2013.
As his firm shrank, Howard worked to overhaul the business by reducing fees and staff and shifting away from focusing mainly on the Brevan Howard Master Fund. In 2017, Brevan began giving star traders their own funds in a move to bring in assets.
Howard’s reboot has started to work. The Master Fund climbed 7.5% this year through September, ahead of the 6.2% return for the Bloomberg Macro Hedge Fund Index.
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Following criticism for its faulty 2016 election algorithms, the firm appointed a new research director to collaborate with its quants and money managers.
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The recent plunge raised suspicions that quants had caused or exacerbated the sell-off.
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Despite returns of about 8% last year, the products lagged behind the S&P 500’s 22% climb.
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The firm also has attracted its first net inflows in 2019 after almost six years of net withdrawals. The money came in after the main fund returned 12.3% in 2018, its best year since the end of the global financial crisis.
Over the past two years, Howard had already turned more of his attention to trading. In 2017, he started his own fund, designed to make big bets in the hopes of achieving bigger profits. The pool 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.
Brevan Howard shuttered more than half a dozen hedge funds in the three years through 2015 to focus on its flagship strategy, which suffered outflows amid mediocre returns. In a change of course for the firm, where a top executive once said that running multiple funds was a distraction, it went on to start money pools for its star traders including Alfredo Saitta, Minal Bathwal and Fash Golchin.
All those funds have made money this year, helping Brevan Howard to stabilize its asset base.
Howard is not alone in turning his attention entirely to trading.
The correlation between fees and performance is not “apples-to-apples when taking the funds’ underlying exposures into account,” an expert says.
Billionaire hedge fund peer Michael Hintze made a similar move this year, bringing in financial industry veteran Xavier Rolet, the former CEO of the London Stock Exchange, to succeed him as CEO at CQS.
Andrew Law of Caxton Associates planned to start a fund last year that will make riskier bets than he did before, while Paul Tudor Jones said in 2017 that he would manage most of the money at his Tudor Investment.
Brevan Howard’s new CEO Landy had been the firm’s chief risk officer since July 2003. Before that, he managed a fund at Millennium Global Investments.
Bloomberg News
