For at least one hedge fund, sorry does not seem to be the hardest word.
Alan Howard, co-founder of Europe’s largest hedge fund, Brevan Howard Capital Management, apologized to investors in his year-end letter, calling its 2.6 percent return for 2013 “somewhat disappointing.”
“We are all fully aware that 2013 was a disappointing year in terms of returns and we are determined to deliver a more satisfactory outcome for 2014,” he wrote in his annual letter. Its performance stands in stark contrast to the returns on the Standard & Poor’s 500-stock index, which was up almost 30 percent last year.
Brevan Howard’s focus is not stocks but currencies and interest rates (though it trades in many asset classes). HFR indexes for global macro were down 0.22 percent and 0.75 percent.
The year was particularly painful for the Brevan Master Fund, the company’s flagship fund, which had notched a 13 percent performance through the end of May, according to The Wall Street Journal. But interest rate trading, one of the firm’s main focuses, proved a tough slog and helped bring the year’s returns down significantly, the letter said.
Mr. Howard said the fund traded on three broad themes: Japan’s recovery (long Japanese equity indexes and short the yen), a bet on the United States recovery (long the dollar compared with a basket of other currencies) and a bet that Europe would have to cut rates further to deal with disinflation. He said the first two strategies made money but the third did not.
The Master Fund started trading in 2003 and has never incurred a loss. In 2008, it returned 20.32 percent against a backdrop of carnage in the markets during the financial crisis, when the S.&P. 500 sank 38.5 percent. The firm is known for solid risk management and not swinging from the chandeliers.
Though 2013 ended badly, it started on a high note. “We are more optimistic about the opportunity set for macro trading now than we have been for some time,” he wrote at the end of last year.