BH Macro 08 January 2025

Brevan Howard (BH) has consistently applied the same philosophy towards generating returns since the Master Fund was launched in 2003. BH Macro (BHMG) was IPO’d in 2007, which is a listed feeder fund into the Master Fund, and represents a highly liquid access point to BH, one of the top hedge fund managers of all time (according to LCH Investments). BH aims to provide compelling, asymmetric returns for its clients, irrespective of market conditions.

As we discuss in the Portfolio section, BH’s traders take a very different approach to investing capital when compared to traditional managers of equity and bond funds. Their process does not rely on correctly anticipating the future path of equity or bond markets. Instead, traders tend to evaluate outcomes, say on the future path of interest rates, and then compare them with what the market is currently pricing in. Where the potential for a move is perceived by BH traders as under- or over-priced by the market, BH’s traders will seek to construct trades which have an attractive payoff if they are right, but minimise losses if they are not. BH describe this characteristic of trades, and of the Master Fund portfolio as a whole, as having convexity.

Aside from structuring convex trades, BH also seeks to minimize risks by proactively diversifying exposures. The Master Fund is made up of diversified capital allocations across BH’s trading teams, and performance is not dependent on any one trader, market view, asset class or trading style. All investment activity is overseen by a highly resourced risk management team of 25+ people, who work closely with the PMs. The risk team monitor the individual portfolio managers’ mandates as well as the overall risk being expressed within the fund. In fact, BH sees risk management as one of the three key pillars of their business, and it is what has contributed to the asymmetry of returns that we discuss in the Performance section.

Aside from having a long pedigree and a large team, BHMG’s performance statistics would indicate to us that Brevan Howard, and by association BHMG’s shares, are the ‘real deal’ in hedge fund terms.

For shareholders, BHMG can offer investors one or both of two roles in a portfolio context. Firstly, by aiming to make money when the opportunity arises, but not suffer from significant falls, BHMG offers the prospect of being a low volatility compounder that can form the core of a portfolio. As we demonstrate in the Performance section, over the past ten years BHMG’s NAV returns have been in a relatively tight pattern when compared to equities, with a relatively low number of negative months. According to our analysis, and whilst past performance is not necessarily a reliable indicator of future performance, the worst month for the NAV in this ten years has been -4.3%, and the maximum drawdown (largest consecutive period of losses) has been -7.2%. Shareholders may therefore have a reasonable degree of confidence that their capital will be protected.

Secondly, BHMG has another useful characteristic as a diversifier, or shock absorber in equity portfolios, because time and time again BHMG has delivered strong positive returns at times when equity markets are under stress, and falling. We should underline that there are no guarantees the same pattern will occur in the future, but in our view this potential as a diversifier is one of the main attractions of BHMG to shareholders.

In the context of current markets, and political and economic uncertainty, combined with diverging central bank responses, it is possible that we are in ideal territory for macro hedge funds like the Master Fund. BHMG has been buying shares back around the 10% discount to share price level, so long-term investors who value the unique, diversifying properties of BHMG may see the current share price discount to NAV as an opportunity.