Bloomberg News

Brevan Howard Says 2011 Choppy Markets Will Be Repeated in 2012

February 02, 2012

Jan. 20 (Bloomberg) -- Brevan Howard Asset Management LLP, the $32.6 billion hedge fund co-founded by Alan Howard, predicted market volatility this year will match that of 2011 as governments in Europe and the U.S. cut spending and growth in emerging economies slows.

“Enthusiasm for additional stimulus appears to have come to an end,” London-based Brevan Howard wrote in a note today. “The largest economies are in a liquidity trap and emerging markets are slowing markedly. Financial markets and the economy are at the mercy of the convergence of these positive and negative forces in 2012.”

Brevan Howard’s biggest fund, the $26.6 billion Master Fund, returned 12 percent last year after it made a bullish bet on U.S. Treasuries and U.K. gilts based on a view that increasing market risk would prompt investors to pile into the safest assets. The firm is expecting 2012 to “mirror the ups and downs” experienced in 2011, when the Standard & Poor’s 500 finished little changed after tumbling as much as 19 percent from an April high.

Global efforts to attack government debt with budget cuts will come with risks that may threaten economic growth, Brevan Howard said in the note. It was published by BH Global Ltd., a publicly traded company that raises money for Brevan Howard’s hedge funds.

“We are about to witness an unprecedented policy move,” the firm said in the document. “Fiscal austerity is being prescribed as the cure following the bursting of the credit bubble. Unfortunately, there is no historical example of when this approach has been successful.”

Traders Hired

Economic growth in the years after the 1929 stock market crash was triggered by stimulus and “sizable depreciations in the exchange of currencies,” Brevan Howard said.

The firm hired about 30 traders in 2011 and plans to “look for opportunities to further enhance its global pool of trading talent” this year, according to the document.

The Master Fund was the firm’s best performing hedge fund in 2011, while the Brevan Howard Emerging Market Strategies Fund was the worst with a loss of 6.1 percent, the note said. Hedge funds posted an average loss of 4.9 percent last year, according to data compiled by Bloomberg.

Howard, 48, founded Brevan Howard in 2002 with four other traders from Credit Suisse Group AG’s proprietary fixed-income trading desk. The Master Fund has never posted a negative calendar year return since its inception in April 2003.

--Editors: Steven Crabill, Josh Friedman

To contact the reporter on this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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