BH Macro (BHMG ), the Brevan Howard hedge fund that has emerged as one of the most successful, if expensive, safe havens in the turbulence of the past three years, is looking to raise a mighty £950m from investors.

The £1.3bn London-listed investment company, which invests in the Brevan Howard Master fund in the Cayman Islands, this week launched a share placing and 12-month issuance programme that it called a ‘significant and important’ development.

Private and professional investors can apply to buy the shares which will be issued at a 2% premium above net asset value (NAV). The retail intermediaries’ offer for private investors closes on 9 February.

It will be accompanied by a 10-for-one share split that, if approved by shareholders next month, will see the maximum 22m shares on offer become 220m shares. This is designed to improve liquidity in the shares which currently trade at a chunky £43.65.  

If successful, and the maximum number of shares is issued, the amount raised could exceed the record £822m Smithson (SSON ) drew in from investors at its 2018 launch. At that level it would certainly dwarf the £378m garnered by last year’s biggest raiser, Capital Gearing (CGT ), a leading wealth preservation fund. BH Macro also took in £187m from regular share issues last year.

Numis Securities analyst Priyesh Parmar said it ‘comes as no surprise’ to see BH Macro launching a bigger share issue as it had traded at a premium ‘for some time’ thanks to its strong returns in volatile markets.

He said the manager had been ‘capitalising on rising rates and its positioning in trades with asymmetric payoffs that typically benefit from rising volatility’.

In the share offer prospectus, BH Macro stated: ‘Against a backdrop of ongoing political instability, prolonged market volatility and macroeconomic uncertainty, the board believes that an investment in the company should continue to provide shareholders with diversification to other asset classes.’

Shares in BH Macro have fallen 6% since the company announced last week it was considering an equity issue. The highly-rated shares stood at an 11% premium above NAV before the announcement and the fall to a more modest 3% premium reflects the fact that the pre-split issue price looks to be around £43 given analysts’ latest estimates for the sterling shares’ NAV is £42.22.

That’s a fairly unusual drop for BHMG, which invests in a wide range of leveraged trading strategies via the $11bn Caymans Master Fund: 80% of the underlying fund’s assets are invested in derivatives linked to interest rates and currencies, although smaller amounts are also allocated to emerging markets, equities, credit and cryptocurrencies.

Despite the esoteric and intricate nature of these investments, and the limited information that Brevan Howard provides on them, the aim of BH Macro is to offer steady returns that are not linked to conventional stock markets.

Bucking trends

In recent years, the ability to diverge from the mainstream has produced some startling results. In 2022 when bond and equity markets around the world were in turmoil, BH Macro made a 21.9% gain for its sterling investors (the dollar share class made slightly less at 21.2%).

It did even better in 2020 when it made money in the pandemic crash and hung on to its gains as markets rebounded to return 35% for shareholders.

The extreme market volatility since Covid-19 struck global markets has been ideal for Brevan Howard’s traders, providing them with multiple opportunities to exploit pricing anomalies in different asset classes.

Over three and five years the shares have shot up 65% and 116% respectively, beating the small number of rival London-listed hedge funds and the MSCI World equity index which rose just 21% and 34%.

The impressive fact about the performance is that the return – which is beaten by only a handful of private equity, mining, commodities and emerging markets closed-end funds – has been achieved with less volatility than most listed equity funds.

Longer-term performance is less impressive, though, with a 10-year shareholder return of 119% reflecting a poorer period of performance in the middle of the last decade.

This led to BH Macro’s board forcing Brevan Howard, which is led by billionaire Alan Howard (above), into accepting a cut of its lucrative management fee. The dramatic improvement in performance in 2020, when markets briefly crashed in the pandemic, saw Brevan Howard controversially threaten to resign unless its 2% annual management charge and 20% performance fee were reinstated. Most shareholders reluctantly agreed but with its chair resigning in protest and some withdrawing their money, BH Macro merged with its stablemate BH Global in 2021 to ensure it had sufficient scale.

This time Brevan Howard is again raising eyebrows in the investment community by requiring that BH Macro give it 12 months’ notice of any disinvestment from the Master fund, which is in line with the notice required to terminate its contract as fund manager.

However, the London investment company can still withdraw up to 5% of its assets from the Master fund each month for the purposes of buying back shares to reduce any future discount to NAV that they might be trading at.  

Experience from the row two years ago suggests investors will accept this if performance continues to be as good.