(Updates with details on Brevan Howard trades in ninth paragraph, hedge-fund performance in 10th graph.)
Oct. 11 (Bloomberg) -- Brevan Howard Capital Management LP has started an investment fund run by a team of former Deutsche Bank AG market strategists in New York, as Europe’s second- biggest hedge-fund firm expands its presence in the U.S.
The Brevan Howard Strategic Macro Fund is managed by Vinay Pande, a former chief investment adviser at Deutsche Bank who joined the firm a year ago, said two people with knowledge of the matter who asked not to be identified because the hedge fund isn’t yet raising money from clients. It seeks to combine Pande’s research of what assets should outperform with Jersey- based Brevan Howard’s ability to structure trades and manage risk, according to the people.
Regulatory filings show Brevan Howard, which manages about $40 billion, has boosted staff at its U.S. unit to 28 people from two in June 2012. It has also been adding new hedge funds after the main fund, which has underperformed its historical returns over the past 21 months, restricted client investments.
“You need to come up with new products if you want to keep growing the business,” said Jacob Schmidt, founder of London- based Schmidt Research Partners Ltd., which assesses hedge funds for investors. “The big firms also have big sales staffs that they want to keep happy by giving them new things to sell.”
Max Hilton, a spokesman for Brevan Howard at Peregrine Communications in London, declined to comment on the new fund, while Pande, 56, didn’t return a phone call seeking comment.
Pande is a partner at Brevan Howard’s U.S. unit, a senior trader at the firm and the co-manager of the Strategic fund, according to biographies posted online earlier this year for speaking engagements at conferences. He worked at Caxton Associates LLC, a New York-based hedge-fund firm, JPMorgan Chase & Co., Credit Suisse Group AG and Goldman Sachs Group Inc. before joining Deutsche Bank, the biographies show.
His team on the Brevan Howard fund includes Gerald Lucas, a former Deutsche Bank senior investment strategist, Yang Tang and Miguel Costa, who also worked at the Frankfurt-based bank, the people said. The fund’s investments will include stocks, credit, interest rates, foreign exchange and commodities, according to the people. Lucas, Costa and Tang declined to comment.
The fund is trading with capital provided by Brevan Howard’s $27.9 billion Master fund, which primarily makes bets on derivatives tied to interest rates and currencies based on global macro-economic trends. The Master fund gained less than 2 percent in the nine months through September after rising 3.9 percent in 2012, trailing the average annual return of about 11.4 percent since it started trading in April 2003, according to company reports obtained by Bloomberg News.
The Master fund made profits this year betting Japanese equities would rise on policy makers’ championing of monetary stimulus, according to a Brevan Howard statement released in August. Brevan Howard suffered losses wagering that the European Central Bank would cut interest rates, a trade that went against the firm when U.S. Federal Reserve Chairman Ben S. Bernanke triggered a rise in global bond yields by signaling in May that the Fed may start curtailing its fixed-income purchases.
Macro funds fell 2.1 percent in the first nine months of 2013, while hedge funds broadly rose 5.6 percent, according to data compiled by Chicago-based Hedge Fund Research Inc.
Alan Howard, 50, who’s based in Geneva, started Brevan Howard in 2002 with four-other members of a proprietary fixed- income trading desk at Credit Suisse.
At Deutsche Bank, Pande’s duties included advising clients on the “ideal portfolio” in research reports the bank published at the start of a given year. He recommended buying emerging-market stocks and bonds, gold and commodities at the beginning of 2012. Emerging-market equities outperformed U.S. stocks last year, while gold rose 7 percent and commodities, as tracked by the S&P GSCI Spot Index, gained 0.3 percent.
Brevan Howard started a hedge fund managed out of New York in 2012 that invests in mortgage-backed securities and other securitized debt, while locking up client funds for as long as two years. The firm formed a separate fund last year with backing from the Pennsylvania Public School Employees’ Retirement System that buys commercial-mortgage backed securities issued before a real estate collapse last decade.
-- Editors: Simone Meier, Jon Menon