Key Takeaways
- • Brevan Howard Asset Management is shutting its $630 million commodity hedge fund following chronic underperformance, with the decision made over a period of weeks in early 2017.
- • The commodity fund, managed by UK Partner Stephane Nicolas, declined 10.3% in September 2016 and had fallen 4.3% through end of October, with broader commodity strategies underperforming across the sector.
- • The closure reflects a broader industry trend of capital flight from commodities; major banks including JP Morgan and Credit Suisse have exited commodities trading citing low profitability and sector headwinds.
- • Brevan Howard, one of Europe's largest hedge fund managers with $37 billion in total assets under management, has previously shut other underperforming funds, including a $2.7 billion emerging markets fund in 2016 that posted a 15% loss.
- • The fund closure is part of a structural shift in hedge fund management away from commodity strategies toward more profitable trading themes and macro positioning.
Summary
Brevan Howard Asset Management has decided to close its commodity hedge fund, which manages $630 million in assets, according to the Wall Street Journal citing two people familiar with the matter. The decision was made over the preceding weeks and follows a sustained period of poor performance that has rendered the strategy unviable for the firm. The commodity fund, managed by Stephane Nicolas, a UK-based partner at the London-headquartered firm, experienced significant losses including a 10.3% decline in September 2016 and a 4.3% drop through the end of October that year, with cumulative losses of 4.2% recorded for 2016.
The closure reflects a broader contraction in the commodities sector among institutional asset managers. Industry data from eVestment revealed that commodity strategies have been systematically underperforming across the hedge fund industry, posting average losses of 1.33% in October 2016, a 0.42% decline for the first ten months of 2016, and a 3.02% decline in 2013. This deterioration has prompted major financial institutions to exit commodities entirely: JP Morgan divested its physical commodities business to Swiss trading firm Mercuria for $3.5 billion in June 2016, while Credit Suisse announced the closure of its commodities trading division in July 2016, with CEO Brady Dougan citing a shift of resources toward "more profitable businesses."
Brevan Howard's decision aligns with the firm's broader portfolio rationalization strategy. The firm previously closed a $2.7 billion emerging markets fund in 2016 after the strategy posted a 15% loss in 2013, with then-manager Geraldine Sundstrom subsequently departing to join PIMCO. Despite these recent setbacks, Brevan Howard remains one of Europe's largest hedge fund managers, with approximately $37 billion in total assets under management. The firm's flagship macro fund, managed by Co-Founder Alan Howard, commands $26.5 billion, representing the core of the firm's institutional positioning in global macro trading strategies where the firm has maintained stronger performance relative to commodity and emerging markets mandates.
The closure reflects a broader contraction in the commodities sector among institutional asset managers. Industry data from eVestment revealed that commodity strategies have been systematically underperforming across the hedge fund industry, posting average losses of 1.33% in October 2016, a 0.42% decline for the first ten months of 2016, and a 3.02% decline in 2013. This deterioration has prompted major financial institutions to exit commodities entirely: JP Morgan divested its physical commodities business to Swiss trading firm Mercuria for $3.5 billion in June 2016, while Credit Suisse announced the closure of its commodities trading division in July 2016, with CEO Brady Dougan citing a shift of resources toward "more profitable businesses."
Brevan Howard's decision aligns with the firm's broader portfolio rationalization strategy. The firm previously closed a $2.7 billion emerging markets fund in 2016 after the strategy posted a 15% loss in 2013, with then-manager Geraldine Sundstrom subsequently departing to join PIMCO. Despite these recent setbacks, Brevan Howard remains one of Europe's largest hedge fund managers, with approximately $37 billion in total assets under management. The firm's flagship macro fund, managed by Co-Founder Alan Howard, commands $26.5 billion, representing the core of the firm's institutional positioning in global macro trading strategies where the firm has maintained stronger performance relative to commodity and emerging markets mandates.
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