Brevan Howard set for big gain as bond rally bet pays off
Jersey hedge fund on course for best half-year returns since financial crisis
Hedge fund Brevan Howard is on track for its best half-year performance since the aftermath of the credit crisis, thanks to bets on plunging US bond yields over the past two months.
Jersey-headquartered Brevan, run by secretive billionaire Alan Howard, saw its main fund gain 9.5 per cent this year to June 21, according to people who have seen the numbers. That includes a rise of more than 4 per cent last month. It means the fund is on course for its best half-year returns since the first half of 2009, and would just pip the profits it achieved during the European debt crisis in the second half of 2011.
Also profiting from falling bond yields is New York-based Caxton Associates. Its main fund is up about 10 per cent this year, according to a person who has seen the numbers.
The increases have largely been driven by the funds’ bets on lower bond yields. The US 10-year Treasury yield has tumbled from 2.69 per cent at the start of the year to less than 2 per cent this week, with much of the dip coming in the past two months. Yields fall as prices rise.
“It’s been the big trade,” said one macro hedge fund manager. “It’s [a trade driven by] the move by the ECB and Fed to indicate easing” of monetary policy.
Brevan’s results mark a remarkable turnround for the firm. A record of making money every calendar year, including gains of more than 20 per cent in both 2007 and 2008 during the financial crisis, helped it grow to more than $40bn as one of the world’s biggest and most influential hedge funds.
But three calendar years of losses between 2014 and 2017 has seen assets tumble as clients have lost patience and pulled out their cash. That has reduced the firm’s assets to $6.8bn.
However, Brevan surprised many in the industry last year with a rise of 12 per cent in its main fund and big increases in a separate portfolio run by Mr Howard, thanks in part to him correctly betting that Italian bond yields would rise amid concerns about the country’s debt pile and its spending policies last spring.
A number of macro funds have been betting on falling bond yields this year. After starting on a gradual downward path earlier in the year, the trade kicked into gear over the past two months when bond yields dipped in response to more dovish comments from the Federal Reserve.