Brevan Howard posts poor returns in flagship fund, emerging markets

Reuters

By Matthew Goldstein, Jennifer Ablan and Katya Wachtel

NEW YORK, Oct 10 (Reuters) - Brevan Howard Asset ManagementLLP, one of the world's largest hedge fund firms with $40billion in assets, is posting lackluster performance in itsflagship fund and heavy losses in its emerging market portfolio.

Two people familiar with the numbers said on Thursday that the flagship, the roughly $28 billion Brevan Howard Master Fund,is virtually unchanged for the year as of Oct. 4. The portfolio,the firm's largest and making macro economic bets, was up about3.8 percent as of the end of June but has been declining since.

The Europe-headquartered Brevan Howard, which has officesaround the world including New York, has not been immune to theroller coaster sell-off in U.S. Treasuries.

Like other hedge funds that bet heavily on changes ininterest rates and bond prices, its portfolio has been hit hardthe past several months by fears the U.S. Federal Reserve willbegin reducing its monthly buying of Treasuries andmortgage-backed securities.

The Brevan Howard macro portfolio's flatish performancecompares to a 2 percent decline for macro-focused funds,according to Hedge Fund Research. But the portfolio lags theaverage 5.6 percent gain posted by all hedge fund as of Sept.30.

The Brevan Howard Master Fund, launched in 2003, has not hada down year since its inception. A survey by research firmPreqin found that Brevan Howard was the 11th most popular hedgefund for U.S. institutional investors.

Brevan Howard has also been rocked by the sell-off inemerging market bonds and stocks, another side effect of thissummer's speculation the Fed will pullback from its easy moneypolicies to stimulate the U.S. economy that have driveninvestors into high-yielding investments.

The firm's dedicated emerging markets hedge fund with $2.8billion under management is down 12 percent for the year as ofOct. 4, according to marketing material reviewed by Reuters.

The fund managed by Geraldine Sundstrom, who joined BrevanHoward in 2007, has been hit harder than most other emergingmarket hedge funds. The average emerging market hedge fund is up2.07 percent this year, according to Hedge Fund Research.

Emerging markets have had a rough year, owing to a growthhiccup in China to protests in Brazil and political upheaval inEgypt. In June alone, U.S.-based EM stock funds saw $17 billionin outflows and U.S.-based EM bond funds suffered $4.24 billionof outflows.

It's not clear why Sundstrom's fund has faired worse thanother emerging market funds. The Brevan Howard fund is up 1.21percent this month, a sign it could be starting to turn thingsaround. Indeed, the performance of Sundstrom's fund has seesawedin recent years. Last year the fund was up about 14 percent, butin 2011, it dipped 6 percent.

A person familiar with the fund said that in the past, AlanHoward, one of the firm's co-founders, has been a big believerin Sundstrom. The person said after the fund's 2011 losses,Howard allocated more money to Sundstrom's portfolio as a signof support.

Howard is a member of the New York Fed's Investor AdvisoryCommittee on Financial Markets, a group of prominent moneymanagers who periodically meet with Fed officials to discusseconomic policy.

In the United States, Brevan Howard began bolstering itsU.S. offices in New York, after curtailing its operations in theU.S. in 2008. The firm, according to a regulatory filing, hasabout 28 people in New York.

But one of its recent hires, Shelley Goldberg, a commoditiesstrategist, already has left. Goldberg, who joined last yearfrom Nouriel Roubini's Roubini Global Economics, left to work inso-called green energy, water and infrastructure investing.

In Europe, where most of Brevan Howard's employees arebased, a number of people have left. In August, Bloombergreported that since May at least a dozen traders have left.

Reuters reported in June that one of those traders was LukeDing, the manager of the firm's $570 million currency fund thathad struggled to gain traction since its launch.

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