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August 10, 2014 9:00 pm
Hedge fund managers rarely lack confidence in their own abilities. Few, however, have gone so far as to argue that the public will suffer if they are not allowed to trade.
Banning the 43-year-old Mr Rokos from running a hedge fund, the trader’s lawyers argue in documents filed to a Jersey court, will mean “the public . . . will be deprived of [Mr Rokos’s] skills and hard work for period in excess of five years”.
While such statements may raise eyebrows, few would dispute the often staggering moneymaking ability of Mr Rokos, who left Brevan Howard in 2012 after earning about $900m in his decade at the fund, according to court filings.
Mr Rokos, the “R” in the Brevan Howard – whose name was partly constructed out of its founding partner’s initials – was for years one of the driving forces behind its growth from a start-up at Credit Suisse’s proprietary trading division in London in 2002 to becoming one of the world’s largest and most successful hedge funds.
While the dispute between Brevan Howard and Mr Rokos looks likely to become a landmark case for non-compete agreements in financial services, it also provides a rare glimpse into the inner workings of an intensely private organisation.
The case comes at a sensitive time for Alan Howard, the dominant co-founder of Brevan Howard and lead manager of its flagship “Master Fund”. Unless performance improves by year end, Mr Howard is at risk of being stripped of his record of never having lost money in a calendar year.
He [Alan Howard] hears everything. He’s very observant. He sits right in the middle of the trading floor, constantly listening to flow and how people are behaving
- Former employee
As investors feel the frustration of a performance that Mr Howard said in a year-end letter was “somewhat disappointing”, the prospect of Mr Rokos emerging as a formidable rival may be a greater cause for concern than normal.
Both Mr Rokos and Brevan Howard declined to comment.
Insiders at Brevan Howard have long argued that the departure of Mr Rokos in 2012 has had no impact on the performance of the fund. However, some investors suggest that Mr Rokos favours a less rigid structure than the one tightly adhered to at Brevan Howard.
The hedge fund is well known for the way it controls risk, meaning that people who lose money are frequently fired. While traders are richly rewarded, earning bonuses of between 11 and 17 per cent of their gains, they will also quickly see the amount of capital they trade with slashed if they post even a relatively small loss.
Mr Howard typically sits in the centre of his traders keeping a close eye on the market.
According to a former employee: “He hears everything. He’s very observant. He sits right in the middle of the trading floor, constantly listening to flow and how people are behaving. He looks at you as your P&L.”
Since leaving Brevan Howard Mr Rokos has been able to trade his own money on his own terms. Over the past year he has quietly built up a well-resourced family office, which already manages more capital than all but the largest of start-up hedge funds. He has also hired several former employees of Brevan to work alongside him.
In an ironic twist, the Geneva based Mr Howard and the London-based Mr Rokos may soon enough risk bumping into one another in the British capital just as their past disagreement becomes public.
Before Mr Rokos left, Mr Howard had moved himself and many of the hedge fund’s main traders to Geneva, but friends have said he has been spending more time in London.
Whether the next time the two see each other will be as former colleagues, or as rival hedge fund managers, seems likely to be decided by the Jersey court.
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