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June 5, 2014 2:20 pm
The influential London Pension Fund Authority has redeemed its entire investment in Brevan Howard, the world’s third largest hedge fund, after it refused to provide a detailed breakdown of its trading positions.
The withdrawal by the highly influential LPFA comes as the UK government has questioned the benefits of the country’s £178bn local authority pension funds investing in active managers such as hedge funds because of high fees and underwhelming performance.
The LPFA, which was one of the UK’s first public pension funds to invest in hedge funds, made a request to Brevan Howard in April last year to redeem its £61m holding in the fund after the manager refused to provide what the pension fund saw as a sufficient level of transparency, people familiar with the situation said.
The LPFA confirmed it had withdrawn its investment in Brevan Howard but declined to comment further. Brevan Howard declined to comment.
After being founded by a group of Credit Suisse traders in 2002, Brevan Howard has grown into one of the world’s largest hedge funds, managing about $40bn in assets and making Alan Howard – one of its co-founders – one of Britain’s richest men.
However, the hedge fund, which employs a so-called global macro trading strategy that uses interest rates and currencies to express predictions about the direction of the global economy, has suffered from poor performance this year, with its flagship $25bn fund run by Mr Howard falling by 4 per cent since the start of the year.
Mr Howard was forced to apologise to his investors at the end of last year as the fund returned 2.6 per cent, a result he described as “disappointing”, and said he was “determined to deliver a more satisfactory outcome for 2014”.
The hedge fund industry, once only accessible to wealthy individuals and family offices, has been increasingly embraced by pension funds, with pension fund assets now making up more than a third of the total investments in the world’s 100 largest alternative asset managers.
Brevan Howard manages $12.3bn in pension fund money, according to the consultancy Towers Watson.
The transformation of traditionally opaque hedge fund managers into effective public sector contractors has placed them under ever greater scrutiny to justify the large fees they charge clients and to provide transparency on how they manage investments.
This demand for transparency has chafed with many hedge funds, which argue that revealing intricate details of their trading positions would put them at a disadvantage in the marketplace and threaten their returns.
Scrutiny of hedge fund investments by UK pension funds has come at a time when many suffer from large deficits – meaning a gap between their assets and liabilities to pensioners – while the hedge fund managers they have employed have continued to build vast fortunes of personal wealth during the financial crisis.
The world’s 25 best-paid hedge fund managers last year took home a combined $21.1bn, 50 per cent more than in 2012, according to an annual survey by Institutional Investor’s Alpha magazine.
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