Key Takeaways
- • Brevan Howard Master Fund posted its worst annual performance since inception in 2003, finishing 2010 with gains of less than 1 percent through December 23, delivering minimal returns on approximately $19 billion in assets.
- • The macro fund's underperformance was driven by losses in interest rates trading, particularly in directional and curve trading strategies, only partially offset by gains in LIBOR basis swaps, swap spreads, interest rate volatility, credit, and commodity strategies.
- • Brevan Howard's $27 billion in total assets made it the UK's largest hedge fund firm and fourth largest globally as of 2010, despite the flagship fund's poor year-end performance and consecutive monthly losses in the final quarter.
- • Alan Howard's two-decade tenure at Credit Suisse as head of interest-rates derivatives trading preceded Brevan Howard's 2002 spinout from the bank following a compensation dispute with then-CEO John Mack.
Summary
Alan Howard's Brevan Howard Master Fund delivered its worst year since launching in 2003, finishing 2010 with returns below 1 percent through late December. The roughly $19 billion macro fund, representing the bulk of the firm's $27 billion in total assets, lost money in each of the final three months of the year, marking a significant underperformance relative to historical standards for a flagship macro strategy.
The fund's struggles centered on interest rates trading, where losses in directional trading strategies and curve trading proved substantial. These losses were only partially offset by profitable positions in LIBOR basis swaps, swap spreads, and interest rate volatility trading. Beyond fixed income, the fund generated gains in credit and commodity strategies, though these were insufficient to overcome core trading losses. Performance data from October indicated similar patterns, with losses concentrated in curve and directional trading, while September had shown strength across interest rates, volatility, swap spreads, foreign exchange, and selective gains in equity and commodity trading.
Despite the difficult year, Brevan Howard maintained significant scale within the global hedge fund industry. At $27 billion in assets under management, the firm ranked as the UK's largest hedge fund firm and the fourth largest globally in 2010. Howard himself brought substantial credibility from 20 years at Credit Suisse and its predecessors, including First Boston, where he headed interest-rates derivatives trading before Brevan Howard's 2002 spinout from Credit Suisse following a compensation dispute with then-CEO John Mack.
The 2010 performance marked a notable inflection point for a fund that had delivered consistent returns since 2003, signaling emerging headwinds in macro trading environments characterized by shifting central bank policy, interest rate volatility, and tightening credit conditions in the post-financial crisis period.
The fund's struggles centered on interest rates trading, where losses in directional trading strategies and curve trading proved substantial. These losses were only partially offset by profitable positions in LIBOR basis swaps, swap spreads, and interest rate volatility trading. Beyond fixed income, the fund generated gains in credit and commodity strategies, though these were insufficient to overcome core trading losses. Performance data from October indicated similar patterns, with losses concentrated in curve and directional trading, while September had shown strength across interest rates, volatility, swap spreads, foreign exchange, and selective gains in equity and commodity trading.
Despite the difficult year, Brevan Howard maintained significant scale within the global hedge fund industry. At $27 billion in assets under management, the firm ranked as the UK's largest hedge fund firm and the fourth largest globally in 2010. Howard himself brought substantial credibility from 20 years at Credit Suisse and its predecessors, including First Boston, where he headed interest-rates derivatives trading before Brevan Howard's 2002 spinout from Credit Suisse following a compensation dispute with then-CEO John Mack.
The 2010 performance marked a notable inflection point for a fund that had delivered consistent returns since 2003, signaling emerging headwinds in macro trading environments characterized by shifting central bank policy, interest rate volatility, and tightening credit conditions in the post-financial crisis period.
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