Alan Howard’s Resource Page

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Background and bio

Alan Howard, aged 50, is the co-founder of the money management firm Brevan Howard Asset Management.

Alan Howard graduated from Imperial College London with a masters degree in science and went to work for Salomon Brothers in their bond department before moving to Credit Suisse.

After becoming Global Head of Proprietary Trading at Credit Suisse First Boston, he moved to Greenbriar Equity Group LLC where he became Managing Director. Howard founded Brevan Howard Asset Management during 2002 with colleagues from Credit Suisse.

Brevan Howard is a global alternative asset manager, managing significant institutional assets across a number of diversified strategies. According to Forbes, Howard’s partnership also sold a 15% interest in the firm to reinsurance company Swiss Re in 2007.  Today Howard also serves on the New York Federal Reserve’s Investor Advisory Committee on Financial Markets.

In 2010 Howard moved his personal residence to Geneva, Switzerland, for life style reasons, as well as presumably for its favourable personal and corporate tax advantages for alternative asset companies such as his. Several of his traders followed him there as well.

In February 2013, Forbes placed Alan Howard as number 21 on their top 40 hedge fund managers list, with estimated 2012 earnings of US$200 million, and with an estimated personal net worth of US$1.2 billion. He dropped off the list after a poor 2013 performance.

Howard founded the Alan Howard Charitable Foundation and last year in November, 2013 he announced a donation of US$32 million (£20 million) to his aluma master, Imperial College, London to establish there a new Centre for Financial Analysis. It will be headed up by two heavyweight economists, Professors Franklin Allen and Douglas Gale, who are leaving top notch US universities to come and set up the Centre.

Investment strategy

Alan Howard demonstrated a fierce adverseness to risk from the beginning of his career. It’s widely considered that his success is a direct result of risk aversion.

“Like all good traders, Alan knows the value of risk, how much risk he can take and the availability of capital. That’s the main differentiation between a good trader and a bad trader, and he was exceptional.” – Oswald Gruebel said describing Alan Howard. They worked together in Credit Suisse Group AG.

It is his cautious nature that has served him well. During the Financial Collapse in 2008, Alan Howard’s Master Fund earned over 10% during the first 10 months of 2011, landing him the 20th position in the coveted Bloomberg Markets of the 100 best performing hedge funds.

This was not the only crisis that Alan Howard was able to ride well using his expertise. In fact successful manipulations include managing the bond market depression in 1994 and 4 years later the collapse of Long-Term Capital Management.

The dominant investment style of Brevan Howard funds is Global Macro. Global Macro is a strategy that takes the global macroeconomic scenario into account and uses current variables to predict future trends. This style is fast gaining momentum in the financial world, since it bases its forecasts on evident economic indicators and uses rational economic theory to predict trends.

Howard is also a contrarian. He chooses to question popular opinion rather than rely on them. His strength lies in questioning and analyzing the reasons behind expert opinions. At the end of 2010, the grapevine had it that the recession was almost at its end and the global economy would be on its path to recovery in a short frame of time.

Howard on the other hand, predicted that the economy would worsen before it improved and took a position on the market based on his expectations. 2011 rewarded him with immense returns; while portfolio values all around were crashing

However, like other investors, Alan Howard’s expectations often do not turn out to be true. In those cases, his behavior is aptly described by his colleague, Chris Goekijan in the following words: “He gets it right more than he gets it wrong, but the important thing is that when he does get it wrong, he cuts very quickly.” As a result, Howard’s main strength is cutting losses as efficiently as possible in inefficient markets to reduce downside risk.

Brevan Howard

Brevan Howard is famous for its careful dealings, as it is a well-known fact that the company does not deposit cash for savings at investment banks. In fact, Brevan Howard chooses to deposit liquid securities such as T-Bill with various custodian banks. This is to eliminate any chances of being caught in bank run and put cash deposits on the line.

Traders at Brevan Howard are provided with written agendas directing them to steer clear of certain markets as well as providing guidance on the use of instruments along with a maximum capital allocation in favorable markets. Traders who are able to successfully implement strategies are rewarded with performance related bonuses and an increased proportion of the portfolio.

The reverse is true for those who incur losses and sometimes those managers can also be dismissed from their duties. This may seem harsh, but investing in hedge funds is all about making absolute returns irrespective of the turns of the market, due to the flexible regulation and nature of industry.

Brevan Howard Asset Management was one of the top hedge fund managers in Europe. It humbly began with just 50 employees; the company now operates in seven offices across three continents.

Until 2013 the Brevan Howard success story was incredible as the assets under management consistently increased and investment performance was outstandingly stable.  However, over the past few years Brevan has shuttered several funds and laid off staff as well as closing offices in Mumbai and Tokyo.

Still, the Brevan Howard Master Fund has never lost money in a calendar year since its inception, and has generated $17 billion in returns for its investors, placing Mr Howard eighth among the best-performing hedge fund managers of all time.

Poor performance

Unfortunately, Brevan’s performance has deteriorated over the past few years. During 2013 the flagship fund didn’t lose money but its return was a lowly 2.59%, compared to the S&P 500’s return over the period of 30%. While the fund outperformed during the first half of the year, thanks to its bets on the Japanese market and U.S. dollar, market volatility surround QE in the U.S. hurt Brevan from May to October, erasing early outperformance.

The Brevan commodities hedge fund, which is currently in the process of being shut down, suffered heavy losses during September of this year, falling 11.2%. The fund’s total value stood at $630 million before the loss. Losses stemmed from the fund’s overweight position in energy. Even though the fund was betting that oil would fall, it was caught out by incorrect bets on futures spreads, the change in price difference between two futures contracts.

The commodity fund closure follows the closure of Brevan’s $2 billion emerging market fund after it lost 15% during 2013.

Back to basics

After a rocky couple of years, Brevan Howard ‘s flagship $26.5 billion hedge fund halved its risk levels this year, moving back toward interest rate trading, where its roots lie, as noted above, Alan Howard’s roots can be traced to rates trading at Credit Suisse.

The fund was slammed by a number of poorly timed bets during the first half of 2014, losing money in 11 out of the last 15 months of trading..Losses on Japanese equities, U.S. interest rates and currencies such as the Canadian dollar all hit performance.

The funds ‘value at risk’ dropped to 0.28% at the end of June, from 0.65% at the end of last year and as much as 1.2% early last year.

Thanks to its bets on the U.S. dollar the Master Fund jumped by 4.4% during September, erasing losses of 4.4% reported earlier in the year.

Early payout

Brevan did wind down early a $385 million one-off fund designed to bet on the recovery of US mortgages during May of 2014. The fund returned 20% p.a. for investors and had a fixed shelf life of only two-and-a-half years.

Brevan Howard in News

 

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