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Brevan Howard Capitalises On Turmoil

26 August, 2011

Brevan Howard, the world’s largest macro hedge fund, has made close to $1.5bn over the past three weeks on the back of turmoil in the global markets.

In a month in which equity markets worldwide have seen declines of more than 10 per cent, the gain comes as a vindication for the $32bn London-based fund manager, which for more than a year – like many of its peers – has struggled to make headway in volatile conditions.

The fund has been “positioned for a global slowdown” since earlier this summer, said a senior employee of the firm – a strategy that has begun to reap serious rewards.

The recent gains mean Brevan’s flagship Master Fund, which for much of the year has been flat, is now up by just over 11 per cent, an investor told the Financial Times on condition of anonymity.

The average global macro hedge fund is down 0.2 per cent so far this year, according to Hedge Fund Research.

So-called global macro funds such as Brevan aim to profit from shifts in the world economy by trading in bonds, currencies, rates and equities.

Brevan is widely regarded as one of the most influential bond-trading firms in the world, thanks to both its size and the frequency with which it trades. However, it is a notoriously publicity-shy company.

The firm’s principal founding partner, Alan Howard, a former top Credit Suisse trader, oversees as much as a third of the master fund’s $24bn portfolio by himself from the firm’s recently opened Geneva office.

In its most recent communication with investors, Brevan said the “enormity” of the fiscal challenges in the US were only now becoming clear.

“The developed world faces the unprecedented prospect of failing into a liquidity trap at a time when the majority of its fiscal and monetary ammunition have been exhausted,” the letter said.

A spokesperson for Brevan declined to comment.

While several other hedge funds have made gains in the past few weeks, none have been as large as those taken by Brevan.

Paul Tudor Jones has seen his flagship $7bn Tudor BVI Global fund gain 3 per cent this month, clawing back losses earlier this year to put the vehicle in positive territory.

Louis Bacon’s flagship Moore Global fund at Moore Capital is meanwhile up by just under 2 per cent so far this month, but remains down 2.08 per cent for the year.

Many hedge funds de-risked their portfolios significantly in May after jitters led many to fear for the stability of the global economy.

Shorts against the S&P 500 are at the highest point they have been since the peak of the global financial crisis in 2008, according to a research note by Société Générale this week.

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Brevan Howard Capitalises On Turmoil

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