In trying times, it can be a flip of the coin whether hedge funds can pull through for investors.
Last year was no joke – fund managers had to wade through volatility from high inflation, soaring energy costs, shaky FX markets, and the war in Ukraine. Globally, hedge funds lost 4% for its investors last year, according to HFR data.
But the volatility came as no surprise to Brevan Howard’s macro fund managers.
They anticipated it and according to its annual report posted on Wednesday it proved “favorable” for its core macro strategies. The London-listed feeder fund BH Macro Fund posted almost 22% gains during 2022 – largely due to its positioning on global interest rates. That’s the second-strongest gain in 15 years.
In the first three quarters of the year, it bet on higher U.S. rates and then pivoted in the fourth quarter when the possibility of an end to the rate-hiking cycle in the U.S. was raised and concerns about recession in Europe emerged. Directors explained that the master fund was able to “generate additional gains” by positioning for lower rates.
For 2023, chair of the board Richard Horlick said their hopes for a soft landing from the Federal Reserve and the European Central Bank were dashed as the interest rate policymakers turned more hawkish on inflation.
“The optimistic scenario of a soft landing appears to be very much under review,” he said.
“Huge uncertainties remain as to whether global central banks will succeed in containing inflation without triggering severe recessions. Something always breaks during a rate-hiking cycle and there’s no such thing as a pain-free recession,” Horlick added.
He also said that policymakers, while experienced and determined, may not have the practical tools to both tame inflation using monetary policy and instil confidence in the financial markets.
“Global imbalances, both within individual economies as well as between them, in part due to economic de-synchronisation, are at generational extremes. As a consequence, the macro landscape looks set to remain extremely interesting,” he added.
Despite all the above, he remained confident that the fund’s strategy is “very well placed to weather these choppy waters” and that the company has a long standing record of performing in uncertain environments. Indeed, the fund posted 28% NAV per share appreciations in 2020 and 23% profits in 2008.
The fund’s sterling listed shares BHMG, -0.36% nudged down 0.4% on Wednesday, and its U.S.-dollar shares BHMU, -1.62% were up 1% during London trading.
In February, the firm announced it had raised £315 million ($ 389 million) through an initial placing of shares, to be invested in the BH master fund.
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