Posted May 26, 2022
By Sean Ring
Macro Genius Invests Across the Crypto Arena
- Alan Howard made his name as a global macro hedge fund manager.
- After the rough decade hedge funds suffered, hes turned to the crypto ecosystem.
- BH Digital is Howards vehicle to venture deep down the crypto rabbit hole.
London, 1999When I arrived in London in October 1999, I started in Credit Suisses trader operations team.Those are the people who capture the trades.That is, when a trader executes a trade with a counterparty, they need to fill out a ticket and give it to the trader operations team.From there, the trader operations team enters the trade into the trade capture system so the banks various other units, like risk management, documentation, and settlement, can do their jobs.It was braindead work for me, but its a critical component of banking.If the trade capture team fails, then no one else knows what the trader has done.Then securities, cash, trade confirmations, and trade settlement all fail.This banal part of banking is not what they write books about.But operations and back office staff account for most of a major investment banks headcount.Of course, most operations staff dream about being a trader - and making a good traders bonus!And the best trader at Credit Suisse in the late 90s and early 00s was Alan Howard.
Analysts Think. Traders Think and Do.I was scared to death of Alan and his team. Intimidated, really.They were Credit Suisses proprietary trading team, and Alan was the Head of Prop.Proprietary trading is when a banks CEO gives a pile of cash to his best internal traders to make a bigger pile of cash.This practice was rampant before the 2008 financial crisis.But a funny thing happened.These traders realized they didnt need to work for a bank to make all this money.There was plenty of investor capital out there for them to trade and earn fat fees from.And when you have a well-deserved reputation like Alan Howard, you take your chances when they come.That chance happened when John Mack, widely known as a former Morgan Stanley CEO, became Credit Suisses CEO for a three-year stint in the early 2000s.Its alleged - and I honestly cant remember - every year, Credit Suisses former CEO Allan Wheat used to pay Howard $30 million in cash for his services as a bonus.When Mack came in, he told Howard he wanted to compensate him with Credit Suisse stock.Howard told Mack he wanted to leave the firm.But there was a way for both to profit from this situation.Howard would take his proprietary trading team and start his own hedge fund.Mack would seed the new Brevan Howard fund with what I believe was a $300 million investment.The Brevan in Brevan Howard is the first initial of the other traders who went with Howard.Why would Mack do this?Because Howard was - and is - a trader who has outstanding macroeconomic knowledge, trades on it, and manages his risk.
Brevan Howard and CryptoAnd thats why seeing Howard move assets into crypto is so interesting.Alan Howard is a global macro hedge fund manager. Thats his forte.Macro traders identify opportunities in the global markets, wherever they occur, and trade them using stocks, bonds, futures, options, swaps any financial instrument.When I moved from operations to the futures desk, I remember my good friend and Rude reader Norfolk Freddie executing (yield) curve trades for Brevan using futures.Now this titan of the macro world has suddenly gone nouveau crypto?Most of the WhatsApp group members who commented agree that Howard has always been ahead of the curve.And this move demonstrates that while crypto is taking its lumps lately, its still the place for forward-looking investors.But something another good friend and Rude reader, Best Man Guy - he really was my Best Man! - said was buzzing in my ear.Best Man Guy worked in the alternative investment space for years.Alternative investments are where hedge funds sit in the financial ecosystem, along with commodities, infrastructure, private equity, and real estate.Guy once slurred over a pint or ten in The Penny Black in Singapore, Seanie, you gotta watch out for style drift. Thats the first sign of trouble in a hedge fund.Style drift happens when a fund manager with a stated investment style begins to transform the fund under management into a completely different style.Of course, the investment outcome remains to be seen.But that Alan Howard is taking this path is certainly worthy of note.
Wrap UpAlan Howard has leaped into the crypto world with relish.In Weekss piece, hes quoted as saying:
BH Digital reflects my belief in the importance of investing across the entire ecosystem, regardless of instrument (i.e., token, equity, NFT, etc.), in a diversified and well risk-managed way. This ensures that your return stream is never dependent on just one strategy, one theme, or one risk-taker.Though one can call this move style drift, Howards diversification strategy sounds like vintage Howard: spotting opportunities, taking the risk, and managing that risk well.Howard mentioned, being in the arena as well.Thats from Theodore Roosevelt. Heres the full quote:
It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows, in the end, the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.Heres to striving for victory in the arena.Until tomorrow.All the best,Sean