Key Takeaways
- • Brevan Howard's Master Fund recorded its first annual loss since inception in 2003, posting a decline of 0.8% in 2018, breaking an 15-year streak of positive calendar-year returns according to Financial Times reporting.
- • Rhode Island's pension portfolio held approximately $79 million in Brevan Howard as of December 2014, and the state has been actively divesting from underperforming hedge fund allocations, including recent exits from Third Point Capital and Mason Capital.
- • Swiss Re, the Zurich-based reinsurer, is seeking to sell its minority stake in Brevan Howard Asset Management LLP, signaling potential pressure on the fund's capital base and investor confidence.
- • Brevan Howard faced prior criticism from former SEC lawyer Edward Siedle in 2013 for lack of portfolio disclosure and opacity practices, concerns that have resurfaced amid the fund's first loss and broader hedge fund performance challenges.
- • Rhode Island's strategic retreat from hedge fund exposure reflects institutional investor skepticism toward the asset class, with the state divesting from multiple positions identified in critical journalism and regulatory investigations.
Summary
Brevan Howard, the $40+ billion asset management firm founded in 2003 by billionaire British trader Alan Howard and four Credit Suisse colleagues, has reported its first calendar-year loss in its 15-year operating history. According to Financial Times reporting this week, the firm's flagship Master Fund declined 0.8% in 2018, ending an unprecedented run of positive annual returns. The loss represents a significant milestone for a fund that had built its reputation on consistent performance through multiple market cycles.
The development carries particular weight for Rhode Island's pension system, which held approximately $79 million in Brevan Howard investments as of December 2014. The state has been systematically reducing its hedge fund exposure in recent years, divesting from Third Point Capital and Mason Capital—positions that Rolling Stone writer Matt Taibbi had highlighted in his 2013 investigation, "Looting the Pension Funds." This latest underperformance aligns with Rhode Island's broader skepticism toward hedge fund allocations.
Brevan Howard's stumble comes amid broader headwinds for the hedge fund industry and renewed scrutiny of the fund's disclosure practices. Former SEC lawyer Edward Siedle, writing for Forbes in 2013, conducted an investigation into then-General Treasurer Gina Raimondo's hedge fund strategy and cited Brevan Howard on multiple occasions for withholding detailed portfolio composition disclosures—practices the fund characterized as standard industry practice. Siedle's report specifically criticized the arrangement under a chapter titled, "ERSRI Agrees to be Kept in the Dark, Grants Mystery Investors Licenses to Steal and Consents to Potential Nondisclosure Illegalities."
Adding to pressure on the fund, Zurich-based reinsurer Swiss Re is pursuing a sale of its minority stake in Brevan Howard Asset Management LLP, as reported by the Wall Street Journal. The stake sale signals potential capital pressures and may reflect Swiss Re's reassessment of the investment's risk-return profile. Together, these developments—the first annual loss, state pension divestment, and strategic stake sales—indicate mounting challenges for a fund that had previously positioned itself as a premier alternative investment vehicle for institutional capital.
The development carries particular weight for Rhode Island's pension system, which held approximately $79 million in Brevan Howard investments as of December 2014. The state has been systematically reducing its hedge fund exposure in recent years, divesting from Third Point Capital and Mason Capital—positions that Rolling Stone writer Matt Taibbi had highlighted in his 2013 investigation, "Looting the Pension Funds." This latest underperformance aligns with Rhode Island's broader skepticism toward hedge fund allocations.
Brevan Howard's stumble comes amid broader headwinds for the hedge fund industry and renewed scrutiny of the fund's disclosure practices. Former SEC lawyer Edward Siedle, writing for Forbes in 2013, conducted an investigation into then-General Treasurer Gina Raimondo's hedge fund strategy and cited Brevan Howard on multiple occasions for withholding detailed portfolio composition disclosures—practices the fund characterized as standard industry practice. Siedle's report specifically criticized the arrangement under a chapter titled, "ERSRI Agrees to be Kept in the Dark, Grants Mystery Investors Licenses to Steal and Consents to Potential Nondisclosure Illegalities."
Adding to pressure on the fund, Zurich-based reinsurer Swiss Re is pursuing a sale of its minority stake in Brevan Howard Asset Management LLP, as reported by the Wall Street Journal. The stake sale signals potential capital pressures and may reflect Swiss Re's reassessment of the investment's risk-return profile. Together, these developments—the first annual loss, state pension divestment, and strategic stake sales—indicate mounting challenges for a fund that had previously positioned itself as a premier alternative investment vehicle for institutional capital.
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