Brevan Howard Has a Plan to Outlast Its Billionaire Founder
(Bloomberg) -- Alan Howard is synonymous with the hedge fund he founded nearly two decades ago. His chief executive officer is on a mission to change that.
Aron Landy, who replaced the billionaire at the helm of Brevan Howard just over a year ago, is shifting the famed macro investing firm away from being a founder-led hedge fund toward a broader financial-services operation, readying it to survive beyond the man whose name is above the door.
“That is, in a nutshell, my goal,” Landy, 58, told Bloomberg in a rare interview. “To continue to move the firm away from the typical hedge fund which is dominated and controlled by one person.”
It’s a major task in an industry built around individuals. Most have failed to address succession planning or over-reliance on an iconic figure, leaving investors worried about what happens when that person leaves, or loses their magic touch with investments. It’s a particular problem for pensions and endowments who are now big backers and need to park money for longer.
Howard stepped back from day-to-day operations in late 2019 to focus on trading. He currently manages a pot of his own money, some clients’ capital and about a 10th of the firm’s main $4.7 billion fund.
But several other traders at Brevan Howard also run their own funds with more than $1 billion in assets. They’re not only winning new clients, but splitting the hero worship, loosening the curse of the solo star.
One of those funds, led by Rishi Shah, returned 99% in 2020, a record year for the company. Clients started to return, assets doubled to $13 billion, and Brevan Howard now even wants to break the industry trend of declining fees by increasing some charges.
That’s a dramatic turnaround for a firm that suffered up until 2018. More than eight out of every ten dollars it once managed was either lost, given back as part of fund closures, or withdrawn by clients after a run of mediocre returns.
While it’s too early to say if Landy has pulled off a rare successful transition -- Howard remains a majority shareholder -- he has a free hand to decide Brevan Howard’s future. Speaking on a Zoom call from his home, Landy didn’t disclose details of his plans, but the direction is clear.
Brevan Howard has created entities such as fund services business Coremont to free itself to focus on investments, and generated fresh income by lending its back office support infrastructure to external managers. It’s moved beyond its flagship fund to offer multiple products and even co-investment opportunities.
The firm plans to stick to its core macro, relative value and derivatives trading roots, but Landy said the changes will make it more resilient.
There are only a few peers to look at for guidance, such as Marshall Wace in London and D.E. Shaw in New York which broadened their businesses so that key founder risk is less of a problem. Hedge funds that have looked beyond individuals and adopted team approach to investing are also thriving. Millennium Management and Citadel have so much demand that they are turning investors’ cash away.
“The transition away from the name of the owner into a brand is not an easy one and only a few managers have been able to do,” said Nicolas Roth, head of alternative assets at Geneva-based private bank Reyl & Cie. “But when done properly, it can lead to a very sustainable future.”
Another risk for investors is route taken by big names such as John Paulson and Michael Platt: Return capital and turn into a family office. That’s something Brevan Howard has in the past denied it will do.
A representative for Howard, whose net worth is estimated by the Bloomberg Billionaires Index to be $2 billion, declined to comment for this story.
Brevan Howard was set up in 2002 by Howard and four other traders from Credit Suisse Group AG’s proprietary fixed-income trading desk. The first part of the company name comes from the initials of founders Jean-Philippe Blochet, Chris Rokos, James Vernon and Trifon Natsis.
Landy has been there almost from the start. He broke into the world of finance after a doctorate in engineering at Cambridge University, first met Howard at Tokai Bank Europe, and joined Brevan Howard in 2003. Before becoming the CEO, he was chief risk officer, in charge of preventing fatal trading accidents.
Howard, a no-nonsense, fast-talking rates trader, built the firm into an investing powerhouse and bolstered his reputation in 2008 when the flagship fund returned 20% as the financial crisis wiped out trillions of dollars from global markets. The firm subsequently hit a rough patch, clients started to desert, and assets collapsed from a peak of $40 billion in 2013 to about $6 billion two years ago.
Then in 2017, it started giving top traders an opportunity to run their own funds. Now Landy is spearheading the effort to make sure the firm never suffers the type of damage that almost brought it to its knees in the last decade.
It recently hired Peter Hornick, who previously recruited money managers at ExodusPoint Capital Management, to expand the firm’s talent team and more aggressively scout for traders.
“The only way to get the best talent is to be absolutely industrial in the effort that you put in,” said Landy, who faces tough hiring competition from giants such as Millennium and Citadel.
Unlike some of its peers who hire and fire money managers frequently, Brevan Howard has a higher tolerance level.
“Brevan Howard’s risk culture is not so rigid that you hit your stop-loss and therefore you’re fired,” he said.
Then there’s one thing many traders desire: a chance to run their own fund. In a tough capital-raising environment and with rising costs, starting a business has lost its charm. At Brevan Howard though, there’s a path for the best-performers to get their own money pool.
One of the keys to Brevan Howard’s transformation is some of those star traders. In addition to Shah, the likes of Minal Bathwal and Fash Golchin manage their own funds and are pulling clients back.
“Not everyone wants to run their own fund because people do understand the pressures of having to answer to investors and being in the public eye,” Landy said. “We support their ambitions.”
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