The BH Macro fund, managed by London-based hedge fund firm Brevan Howard Asset Management, gained about 1 percent in the first two weeks of June alone. But the fund, which invests substantially all of its assets in the Brevan Howard Master Fund, is still down by 2.82 percent for the year and is in serious jeopardy of posting the first annual loss in its history.
Brevan Howard’s woes are especially embarrassing given that in its year-end commentary, Alan Howard, the founder of the $40 billion firm, was upbeat about the prospects for making money in the global bond markets in 2014.
“We are looking forward to an opportunity-rich year for rates trading in 2014,” Howard wrote in his year-end letter to investors. Howard, who is based in Geneva, also asserted that Japan was still a great place to make money this year, telling clients that “Japanese authorities remain determined to reflate the Japanese economy.”
Brevan Howard has actually been having a tough time for about a year and a half. The fund had gained more than 7 percent in the first four months of 2013, but it limped to the finish line, ending the year up by just 2.59 percent. Earlier this year Brevan Howard closed its $2 billion emerging-markets fund, which lost 15 percent last year.
On the other hand, the $4.4 billion BH Credit Catalysts fund rose 13.9 percent in 2013, while the $2.4 billion BH Asia fund gained 11.6 percent.
What has gone wrong for BH Macro and the flagship fund in which it invests? A look at this year’s first four monthly letters provides some good insight.
It appears that in the first few months of the year, the fund was mistakenly betting on the global stock markets to fall. For example, when it lost 1.4 percent in January, the fund attributed the setback mainly to equity macro trading and to a lesser extent interest rate trading, mainly in what it calls U.S. dollar directional trading. BH Macro told clients losses were partially offset by gains in foreign exchange trading “and to a lesser extent” in euro interest rate trading.
In February BH Macro lost another 1.16 percent (in its U.S. dollar shares), again mostly due to macro equity trading as well as foreign exchange trading and euro interest rate trading. “These losses were partially offset by small gains in credit trading and in interest rate trading in currencies other than the U.S. dollar and euro,” the fund added in the monthly report.
During March, when it tacked on another 0.5 percent loss, the fund once again lost some money from foreign exchange trading, and to a lesser extent U.S. dollar interest rate trading and equity macro trading. It enjoyed “small gains” from interest rate volatility trading, the fund reported.
And in April, the last month for which it has issued a monthly analysis, the fund lost nearly 1 percent. As in March, the fund suffered losses from foreign exchange trading, U.S. dollar interest rate trading and equity macro trading. The losses were partially offset by gains in euro interest rate trading and in credit trading.
In May the fund lost just 0.14 percent, bringing its loss for the year to 3.75 percent. However, it is not clear which strategies did and did not work for the month, since the fund has not issued a report for the period.
Whatever the case, with a little more than six months left in the calendar year, it will be a formidable task for Howard just to return the fund to positive territory, let alone mine the opportunities in interest rate trading.
However, to his credit, Howard is faring better than many of his major macro-oriented peers, even though they are also enjoying strong starts to June. Through June 10, Andrew Law’s New York–based Caxton Global Investments fund had declined 4.9 percent. Through June 6, Paul Tudor Jones II’s Greenwich, Connecticut–based Tudor BVI fund was down 4.02 percent for the year. Robert Citrone’s Discovery Global Macro Fund was off by 11.91 percent over the same period, while his Discovery Global Opportunity Fund declined by 7.51 percent. Through May 31, Louis Bacon’s New York–based Moore Global Investment Fund had fallen by nearly 5 percent.
