Market turmoil: Pedestrians in front of the Bank of England building. Currency volatility has surged following Trump’s election as US president with investors speculating on the tariffs that he will impose on trading partners including the European Union. — AFP
LONDON: Brevan Howard Asset Management is off to its worst start to a year since billionaire Alan Howard co-founded the macro trading firm more than two decades ago, extending a volatile phase of trading.
Its flagship Brevan Howard Master hedge fund tumbled 2.93% in January after being down as much as 5% earlier in the month, according to investor updates seen by Bloomberg News.
The decline erased a good part of the fund’s 5.3% gain for last year.
Brevan Howard’s other large fund, Alpha Strategies, was up 1.45% last month.
The losses were in part tied to the fund’s wagers on currency volatility, a person with knowledge of the matter said, asking not to be identified because the details are private.
Hedge funds including Brevan Howard often use derivatives fuelled by borrowed money to speculate on the direction of currencies or the magnitude of swings.
This can lead to outsize gains, but the assets can quickly lose value as well.
The decline marks the continuation of an unusual trading phase at the Brevan Howard fund that’s lurched between gains and drops in the past five months.
The Master fund, which is known for macro wagers, gained 5.3% in 2024, lagging behind the 7% average gains offered by macro trading peers tracked by Bloomberg.
Last year’s entire return came in the final quarter and was due to profits tied to the fund’s currency wagers as well as its exposure to digital assets, another investor document showed.
Alpha Strategies gained 2.6% last year to record its smallest return since launching in 2018, a separate document showed.
Currency volatility has surged in the wake of Donald Trump’s election as US president last November as investors speculated on the tariffs that he would impose on trading partners, including the European Union. One measure tracking the dynamic in the euro-dollar rate climbed to its highest level in almost two years in mid-January.
Yet, those wagering that this trend would continue for the rest of January got caught on the wrong foot when the Trump administration refrained from acting on its tariff threats immediately after taking office.
That led to analysts at JPMorgan Chase & Co to describe the situation as “tariff purgatory”.
The bank’s global foreign-exchange volatility index fell to its lowest level in about six months on Jan 24.
Trump then shook up the foreign exchange market again on Jan 30, telling reporters that he planned to impose tariffs of 25% on imports from Canada and Mexico on Feb 1 before agreeing to delay the move for a month after both neighbours agreed to take tougher measures to combat migration and drug trafficking at the border.
Currencies of both those countries plunged against the dollar on the tariff threats.
Brevan Howard manages about US$35bil following rapid growth after hitting a low of about US$6bil in 2019.
Underperformance relative to peers in recent years and the need to streamline its operations and cut costs have prompted the firm to readjust, cut workforce and close two funds. — Bloomberg
