Key Takeaways
- • Brevan Howard's flagship macro fund posted a loss of approximately 2% in the prior year and declined 3.4% through October 28, 2016, significantly underperforming amid a broader hedge fund trading boom in macro strategies.
- • The firm was preparing for a "worst-case scenario" of dramatic asset decline, with profits available to be shared by partners falling by approximately one-fifth to £61 million, signaling severe margin compression across the organization.
- • Assets under management have experienced substantial contraction, declining from $41 billion in 2013 to significantly lower levels by mid-2016, reflecting persistent investor redemptions and weak fund performance.
- • Brevan Howard's underperformance in macro trading—a core competency since the firm's 2002 founding—represents a strategic vulnerability as the broader hedge fund industry capitalizes on favorable macro market conditions.
Summary
Brevan Howard Asset Management, one of the world's largest and most prominent global macro hedge funds, is experiencing rapid asset contraction and profitability deterioration amid weak fund performance and investor redemptions. Founded in 2002 and headquartered with six offices globally, the firm has seen its asset base shrink substantially from its 2013 peak of $41 billion, with the firm reportedly preparing contingency plans for a worst-case scenario involving further dramatic asset decline.
The firm's flagship macro fund—which forms the centerpiece of its investment platform—has delivered disappointing returns in 2016. Through October 28, the fund was down 3.4% year-to-date, following an approximate 2% loss in the prior year. This underperformance is particularly notable given that 2016 has proven favorable for macro-focused hedge funds broadly, meaning Brevan Howard has missed out on industry-wide tailwinds in macro trading. The fund's June performance also reflected weakness, with small monthly declines during that period.
The financial strain is evident in partnership economics. Profits available for distribution to partners fell by approximately one-fifth to £61 million for the year ended March 2016, indicating significant margin compression and reduced compensation for senior management. This represents a material deterioration in the firm's profitability profile and suggests that revenue generation has declined substantially.
The combination of persistent underperformance, investor redemptions, and compressed profit pools presents a strategic challenge for Brevan Howard at a critical juncture. The firm's core competency in global macro investing—once a substantial competitive advantage—has not translated into outperformance during a period when macro strategies have attracted significant capital flows industry-wide. As the firm navigates this downturn, the trajectory of assets and returns will be closely monitored by institutional investors and peers assessing the sustainability of Brevan Howard's positioning within the elite tier of hedge fund managers.
The firm's flagship macro fund—which forms the centerpiece of its investment platform—has delivered disappointing returns in 2016. Through October 28, the fund was down 3.4% year-to-date, following an approximate 2% loss in the prior year. This underperformance is particularly notable given that 2016 has proven favorable for macro-focused hedge funds broadly, meaning Brevan Howard has missed out on industry-wide tailwinds in macro trading. The fund's June performance also reflected weakness, with small monthly declines during that period.
The financial strain is evident in partnership economics. Profits available for distribution to partners fell by approximately one-fifth to £61 million for the year ended March 2016, indicating significant margin compression and reduced compensation for senior management. This represents a material deterioration in the firm's profitability profile and suggests that revenue generation has declined substantially.
The combination of persistent underperformance, investor redemptions, and compressed profit pools presents a strategic challenge for Brevan Howard at a critical juncture. The firm's core competency in global macro investing—once a substantial competitive advantage—has not translated into outperformance during a period when macro strategies have attracted significant capital flows industry-wide. As the firm navigates this downturn, the trajectory of assets and returns will be closely monitored by institutional investors and peers assessing the sustainability of Brevan Howard's positioning within the elite tier of hedge fund managers.
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