Can hedge funds prosper without their star trader founders?
Two of the biggest names in global macro trading, Alan Howard and Chris Rokos, embody differing approaches to legacy
In late 2019, hedge fund trader Chris Rokos convened his top portfolio managers at the firm’s Mayfair offices.
Performance at his four-year-old hedge fund Rokos Capital Management had been poor, and it was time for the firm’s mercurial founder to take matters into his own hands.
Rokos told his assembled lieutenants that all key investment decisions would now go through him and they would no longer be able to manage their own money. RCM saw this as a necessary strategic shift to better encourage collaboration, but several of those portfolio managers departed in the months following.
Around the same time and just a few blocks away in Marylebone, traders at Brevan Howard, the hedge fund Rokos had co-founded some two decades earlier, were also on the cusp of a new chapter. The firm’s billionaire CEO and co-founder Alan Howard had just anointed a successor.
While he would continue to trade, Howard was beginning to lay the groundwork for a Brevan Howard that he hoped would one day carry on without him. The vision was the inverse of what Rokos had engineered — what one person close to the firm characterised as the opposite of “key man risk” — namely, a firm propelled by the efforts of legions of autonomous traders, rather than by star traders making big bets.
But years later, and despite these efforts, both men are grappling with a perennial issue that faces hedge funds with a talented individual at their centre: how to create a sustainable business that can outlive them.
The onetime colleagues turned rivals are among the last of the prominent big name traders in so-called global macro, one of the world’s oldest hedge fund strategies, which involves betting on the back of macroeconomic trends.
The $4.5tn hedge fund industry has undergone a shift away from the days when the lions of macro trading like George Soros, Paul Tudor Jones and Louis Bacon placed huge wagers on swings in interest rates, currencies and equities. Instead, the industry has professionalised into polished businesses — multi-manager firms like Citadel, Millennium Management and Point72 — that have tried to de-emphasise the investment prowess of a founder.
The star traders that remain now face the challenge of proving to investors that the hedge funds they created can thrive without them.
Howard, 61, has seemingly created a durable business powered by the efforts of a team, but amid a recent run of poor performance he has been more involved with the master fund, raising the question of whether he can ever truly disentangle himself from the eponymous firm where he is the majority owner.
For his part, the 54-year-old Rokos has leaned into his star trader credentials but in doing so has — as things stand — complicated the prospect of the firm outlasting him. People close to the firm say RCM is bigger than one man and succession is not an immediate concern.
History suggests evolution is inevitable. “Most hedge funds either become firms that handle multiple portfolio managers . . . or they die with the founder,” says Rick Sopher, CEO of wealth manager Edmond de Rothschild and chair of LCH Investments, which has been investing in hedge funds since 1969.
Alan Howard formed Brevan Howard in 2002, when he, Rokos and a group of colleagues spun out of the Credit Suisse First Boston proprietary trading desk.
From the very beginning, Howard himself was at the centre of the hedge fund’s evolution. He was its key portfolio manager, managing billions of dollars of investor money, and as the firm’s CEO also managed its growth strategy.
“Alan could trade 100 things a day,” recalls one former Brevan portfolio manager. “He processed information at an incredible speed.” Another says his former boss seemed to possess a photographic memory.
Aided by a wide network of contacts in central banks and external consultants, Howard was perceived as a master of understanding the way officials thought about policy decisions. This translated into a series of well-timed trades on the direction of interest rates.
According to multiple people that worked with him, Howard had a reputation as a conservative trader, structuring asymmetric positions and saving his biggest bets for when he was highly confident of an outcome.
Rokos, in contrast, was known for his huge appetite for risk. “If Rokos thinks the Japanese market will go up, he will put options, futures, swaps on, all [positioned] one way,” says a portfolio manager who worked with both men.
The younger man’s edge was his mastery of the bond yield curve — understanding the different interest rates paid for short and long-dated debt — and a single-mindedness that verged on the obsessive when it came to analysing trades.
Rokos was known to ask piercing questions of portfolio managers and analysts, and sometimes seemed to know people’s trades better than they themselves did.
The approach was very lucrative: during Rokos’s 10 years at Brevan Howard, he single-handedly made over $4bn for its master fund and $900mn for himself, according to court documents.
While both men contributed to Brevan Howard’s growing clout, it was Howard’s defensive trades in 2008 in anticipation of a market crash that helped catapult the firm into hedge fund royalty.
When the average hedge fund lost 19 per cent in 2008, the Brevan Howard master fund made over 20 per cent.
Howard’s trading talents were accompanied by a savvy business nous. He jumped on Brevan’s newfound reputation as a port in the storm during the financial crisis, and pitched his firm as a way to protect assets during down markets and as a long-term partner for institutional investors. This approach would resonate with investors, propelling Brevan’s assets to $40bn by 2013.
But as it grew, the firm’s character began to change. Rather than rely on a few star traders to make most of the firm’s profits, it shifted towards more of a numbers game. The idea was to use a tight risk management framework to prevent the majority of traders from blowing up, while enabling a few traders each year to hit home runs.
In 2012, co-founder Rokos left the firm and later sued Brevan to release himself from a five-year non-compete agreement.
As the legal battle raged over the ensuing years, Brevan’s performance started to suffer. Central banks brought interest rates down dramatically to near zero, reducing the volatility of bond prices, which made it more difficult for macro hedge funds to make money.
The firm also struggled to put all of its newly raised money to good use. Howard acknowledged in 2016 that the master fund had grown too large at its $27bn peak and that it was the “wrong size for the markets we have our primary focus in”.
But portfolio managers who worked there at the time say the departure of Rokos also made a difference, describing him as the yin to Howard’s yang.
“Having the two intellectual powerhouses of Chris and Alan under one roof served them well; they were a nice counterbalance,” says one former portfolio manager. “[Chris’s departure] reconfigured the balance.”
Howard had built one of the world’s largest hedge funds, and one of the industry’s most recognisable brands, but one thing still eluded him. He hadn’t proved that Brevan Howard was fully capable of moving past its star-trader roots.
By 2015, Rokos had finally settled out of court with his former employer and got the green light to launch his own hedge fund. He even secured an investment from Howard himself.
Initially, Rokos Capital Management looked similar to an early Brevan: the risk-taking was concentrated in its founder, surrounded by specialist portfolio managers with the latitude to trade their own strategies.
But with the exception of a stellar 2016, performance was disappointing. The fund was down a few percentage points in 2015, 2017 and up only 2 per cent in 2018.
Rokos’s move the following year, seen as centralising control around himself, would prove a crucial turning point.
Performance radically improved, delivering enormous returns of 51 per cent in 2022 and 44 per cent in 2020. At the same time, it was far more volatile: the fund lost a quarter of its value in 2021. In contrast, Brevan Howard’s master fund has never lost more than 5 per cent in a single year.
Putting more control in the hands of its founder makes RCM a rare beast in the world of hedge funds. Today, multi-strategy funds — sometimes nicknamed “pod shops” — typically employ dozens of teams trading different strategies within a tight risk management framework.
“Chris is the antithesis of a multistrat,” says the head of one large macro hedge fund rival. “There is one pod and it’s him.”
Rokos meets with the 30 or so investment officers regularly and rewards those that give him the best ideas.
“The best way to put it is this: Chris’s ideas are everyone’s ideas, and everyone’s ideas are Chris’s ideas,” says a partner at RCM. “He relies on them [investment officers] to give him guidance . . . he is one man, if a brilliant one.”
A person familiar with the firm’s thinking disputes the assessment that Rokos centralised control around himself, saying instead that the firm built a collaborative model between sector experts overseen by Rokos. The person adds that there is a section of the portfolio that allows investment officers to make preapproved trades.
While the firm has grown substantially since 2015, with over 340 staff, its success is still seen as largely down to Rokos’s market insights and trading nous. This makes it vulnerable to large-scale redemptions if his circumstances were to change, investors and rivals say.
“Chris has done an amazing job,” says the rival. “[But] what if he breaks his leg? As an investor I would be incredibly nervous about being exposed to this genius.”
Rokos declined to comment, but the person familiar with the firm’s thinking says RCM has the investing and management talent to step up in the event of the founder’s absence.
While RCM was getting off the ground in 2015, Brevan was in the middle of an existential crisis. Performance was suffering, traders were leaving, and subsequent investor redemptions contributed to reducing assets by 84 per cent from its peak to just $6.4bn in 2019.
But it was too early to write off Howard. From a diminished asset base, in 2018 he roared back with an enormous bet against Italian debt, contributing to the master fund’s return of over 12 per cent that year.
This tentative turnaround set the stage in late 2019 for Howard to name his anointed successor CEO: Brevan’s longtime chief risk officer Aron Landy.
Internally, Landy is viewed as down-to-earth and approachable. The appointment marked a clear nod towards the firm’s emphasis on risk management and another attempt to reduce the spotlight on Howard.
Before his ascension, Landy had helped conceive of the Alpha Strategies fund, an offering launched in 2018 that aimed to provide more consistent returns that would complement the more volatile and directional master fund.
Investors responded well; Brevan’s assets grew fivefold to $35bn between 2019 and 2023, and it hired over 100 traders to support the burgeoning asset base.
It also diversified geographically. In 2023 Brevan selected Abu Dhabi — the self-styled “capital of capital” — as its headquarters for a Middle East expansion, lured by its low taxes and regulatory regime.
Here, Howard sensed both a fundraising opportunity and a chance to sell a stake in the business to a local sovereign wealth fund like the Abu Dhabi Investment Authority, according to several people familiar with the situation. In recent years, Howard has signalled to large institutional investors globally that he would be open to a conversation about selling a stake in the business, they say.
But there was one problem: performance. Brevan’s two main funds — the master fund and the Alpha Strategies fund — are both on the back foot after two years of lacklustre returns.
Investors have noticed, not least in the UAE. The opening of the Abu Dhabi office has not led to significant allocations from local investors, the people familiar with the situation say.
“The Emiratis have lots of money but they’re not idiots,” says one. “They’re not going to invest after two years of poor performance.”
Three investors say they believe Brevan raised too much money too quickly. “Investors are saying, ‘Isn’t this a case of Brevan Howard growing too large and are we not at the cusp of another period of no performance?’” one of them says, referring to a previous spell of poor returns that roughly coincided with its peak assets in 2013.
A person close to the company says that asset growth is spread across several funds and the firm carefully manages their capacity. It has strengthened its capital base and is growing its digital asset business. “No one individual determines the longevity of a fund or our firm any longer,” said the person close to the firm.
There are idiosyncratic challenges facing the two main funds, each running around $12bn.
For the master fund, returns from global macro are inherently lumpy. Bets are typically concentrated — if you’re wrong it’s painful. For the alpha strategies fund, it is about proving Landy’s approach is the right one.
It is not nearly as diversified as more established multi-manager firms such as Millennium and Citadel. Several people familiar with Brevan Howard questioned whether the macro mindset and risk framework is compatible with building a truly diversified multi-manager platform. “If you get those [macro] trades wrong and overlay that with Aron’s strict risk framework . . . you completely de-risk and miss the rebound.”
As performance has struggled, Howard seems unable to resist taking more of an active role. “In the second half of last year, Alan became more involved in the master fund,” mentoring and challenging portfolio managers on their views, according to a person with direct knowledge of this.
“Alan is key to the P&L and if he’s not involved, it’s not the same,” says a second rival. “As much as he wants to build a business for the future, it’s not that easy.”
The person close to Brevan Howard says the founder remains “deeply involved” in the strategic direction of the firm, but says the common goal is to “create something that outlives individuals”.
Rokos too has one eye on the future. He is further away from retirement than Howard, but people close to him say he is already thinking about how — and whether — his firm will survive a transition to the next generation.
“We are thinking about the next 10 years,” says one partner at the firm. “I don’t think anyone that has done it as long as he has wants his legacy to fizzle away.”
Rokos has been building up the firm’s senior ranks with potential successors, in a signal he has an eye on the next chapter. Earlier this year, the firm hired JPMorgan Chase’s co-head of global markets as its new deputy-chief investment officer, reporting directly to Rokos — his first investing deputy since 2022.
Insiders argue that there is plenty of talent at the firm supporting Rokos that might be able to take over one day, and that the firm is starting to evolve beyond its founder.
Ultimately, however, the decision on how well Brevan Howard or RCM will outlast their founders may come down not to the two men themselves, but to their backers.
“There are some funds where you stay with the key man and one day, when he retires, you retire with him,” says the second rival. “Not everything is repeatable.”
