Brevan Howard May Miss EU1 Billion Target for Hedge Fund IPO

Brevan Howard May Miss EU1 Billion Target for Hedge Fund IPO
By Elisa Martinuzzi and Andrei Postelnicu
March 6 (Bloomberg) -- Brevan Howard Asset Management LLP may fall
short of the 1 billion euros ($1.3 billion) of new money it's seeking
in the initial public offering of a hedge fund, said two people with
knowledge of the transaction.
The London-based firm, founded in 2002 by Alan Howard, the former
head of proprietary interest-rate trading at Credit Suisse Group, is
asking clients in its four-year-old Master Fund to move money to the
new listed fund, BH Macro Ltd., said the people, who declined to be
identified before the offering is completed.
Brevan Howard is following New York-based Goldman Sachs Group Inc.
and Marshall Wace LLP of London in making hedge funds more accessible
to individual investors by selling shares to the public. Investors
may be deterred by stock market turmoil during the past week and
declines in shares of the Marshall Wace and Goldman funds since their
IPOs last year.
``It's not clear if investors are better off going into a publicly
traded fund,'' said Jacob Schmidt, founder of London- based hedge
fund adviser Schmidt Research Partners. ``As markets fall, investors
become very careful about where they put their money. These are
untested waters.''
Hedge funds, usually aimed at investors with at least $1 million,
seek to make money in falling as well as rising markets. They can use
leverage to increase the size of their bets and sell short, or borrow
securities and immediately sell them with the hope of buying them
back at a lower price.
Fund Fees
The new Brevan Howard fund, whose shares are on offer through March
8, will invest in the Master Fund and carry lower fees. Alastair
Crabbe, a spokesman for Brevan Howard, declined to comment because
the offering isn't completed.
The IPO is intended to boost the Master Fund's assets by more than 10
percent from the $11.3 billion under management on Oct. 31. Brevan
Howard said last month it might increase the sale to as much 1.5
billion euros, depending on demand. Citigroup Inc., Goldman and
JPMorgan Cazenove are managing the offering.
The publicly traded fund will invest in the Master Fund and pay
Brevan Howard 20 percent of the profit from its investments. That
compares with the 25 percent fee that new investors in Brevan
Howard's Master Fund have to pay. All investors are also charged a 2
percent management fee.
The Master Fund is a so-called macro hedge fund, meaning it bets
across markets on broad economic trends. The Master fund had an
annualized return of 10.2 percent from its inception in April 2003
until the end of last year, according to the prospectus for the BH
Macro fund.
Performance Lags
Macro funds returned an average 8.5 percent in 2006, according to
Chicago-based Hedge Fund Research Inc., up from 6.8 percent in 2005
and 4.6 percent in 2004. The Standard & Poor's 500 Index returned
15.6 percent last year, including reinvested dividends.
The euro- and dollar-denominated shares of Marshall Wace's MW Tops
Ltd. fund, sold to investors in December, have fallen since the
offering. The euro shares are trading 2.5 percent below the IPO
price, and are below the fund's net asset value of 10.01 euros a share.
Euro- and dollar-denominated shares of Goldman Sachs Dynamic
Opportunities Ltd., which began trading in July, are also below their
offer price.
``We never advise clients to buy into these funds at the IPO,'' said
Davide Squarzoni, senior investment consultant at Prometeia SpA in
Bologna, Italy.
Investors poured a record $126.5 billion into hedge funds globally
last year, data compiled by Hedge Fund Research show. The private
pools of capital allow managers to participate substantially in the
gains of the money invested.
Hedge funds in Europe have been able to bypass rules restricting the
sale of the investments to less affluent individuals by listing their
funds as companies on the stock market and selling shares.
Hedge funds had their biggest one-day decline in almost four years on
Feb. 27 as global stock markets plunged, according to an index from
Hedge Fund Research. HFR's Global Hedge Fund Index fell 1.4 percent
that day, the largest decline since it began in March 2003.
To contact the reporters on this story: Elisa Martinuzzi in Milan at
emartinuzzi@bloomberg.net ; Andrei Postelnicu in London at
apostelnicu@bloomberg.net