Brevan Howard Scores Largest Crypto Hedge Fund Launch Ever

Blockworks exclusive: The longtime global macro hedge fund firm has raised more than $1 billion for its flagship crypto vehicle, according to four sources with knowledge of the matter

Brevan Howard Asset Management has pulled off the largest crypto hedge fund launch yet.

The firm’s flagship digital assets-focused vehicle raised more than $1 billion from institutional investors, according to four sources with knowledge of the matter — with the vast majority of the lofty haul timed with the fund’s launch earlier this year. 

The fundraise by BH Digital, the unit that oversees Brevan’s voluminous crypto trades, would rank annually among the upper echelons of even conventional hedge fund strategies. By digital asset standards — considering overall market capitalizations are far lower — it’s an “absolutely massive” result, one source said. 

What’s more, early performance has trounced the competition, according to another source.

The commingled vehicle, Brevan Howard Digital Asset Multi-Strategy Fund, lost a scant 4% to 5% from inception through the end of June, according to the source — even as the one-two punch of the implosion of Terra stablecoin UST and the insolvency of crypto lenders, such as Celsius and Voyager, locked price action and liquidity into respective death spirals. 

“Their returns, relative to the market, are unbelievable,” a source said. 

Sources were granted anonymity to discuss sensitive business dealings. A spokesperson for Brevan declined to comment. 

Employing a multi-manager and multi-strategy approach, the flagship puts limited-partner capital to work via both venture capital-style plays and liquid cryptos. More than 60 staffers run BH Digital’s operations, up from 25 employees in January, Blockworks previously reported. 

Strategies — including quantitative trades and relative-value plays — are implemented by teams of portfolio managers structured in so-called “pods” that feature supporting analysts and engineers. The division, additionally, now has more than 20 external blockchain engineers working under full-time retainers. 

Brevan Howard still has dry powder ready to deploy

It’s by far the largest commitment to crypto by a traditional finance asset manager. The global-macro-focused Brevan runs about $23 billion overall across a wide range of asset classes.

The scope of the pricey nascent operation reflects founder Alan Howard’s longtime and deep rooted bullishness on digital assets, even as Howard has stepped back from day-to-day oversight. His family office has invested heavily in a slew of now-high-profile crypto startups, including Polygon.

BH Digital hasn’t fully deployed its capital — in part, perhaps, explaining its relatively strong performance — but its portfolio managers have evidently put to work substantial sums. 

There’s “not enough liquidity” in the market now for $1 billion to be “deployed in liquid strategies,” one source said, unless it’s a “plain vanilla” approach, including long-only and trend-following tactics. 

Cryptocurrencies — especially moving away from industry stalwarts bitcoin and ether — often are akin to small- or medium-cap equities. Building a sizable long or short leg in such an asset is tricky to pull off in quick fashion without impacting its acquisition price in a meaningful way. 

The evergreen fund has an initial capacity of up to $1.5 billion, crypto-focused business development executives have told deep-pocketed investors. But that ceiling is expected to soon rise as the unit adds investment professionals and brings fresh sets of strategies to market. 

Brevan Howard Digital Asset Multi-Strategy Fund remains open to external capital, pursuant to a minimum check of $5 million. Its limited partners include a number of the world’s largest and most sophisticated hedge fund investors, including entities that have historically exclusively backed traditional financiers. 

“That’s the thing about Brevan: [Limited partners] that haven’t touched crypto with a 10-foot pole trust them,” one source said. “The fact that they’re an unproven new launch almost doesn’t matter. If I’m an endowment, who am I going to trust with my money? One of the world’s smartest macro guys? Or a crypto native who doesn’t speak my language?”

Timing the market

The fund’s current assets don’t appear to reflect proprietary capital supplied by BH Digital partners or from Howard himself. 

Both pools of money could substantially move the needle on how much the division is actually trading. It’s known the firm has committed at least several hundred million dollars — and perhaps even more — of its own cash to the endeavor. 

When it comes to private plays, the vehicle imposes a cap of 50% of an investor’s total portfolio. Investor returns have been impacted by when they’ve backed the firm, which shifts their exposure to venture stakes. The portfolio overall now consists of less than 10% of venture investments.

Brevan largely stayed on the venture sidelines before crypto’s crash, wary of sky-high valuations and reluctant to engage in an arms race with established players, such as Andreessen Horowitz (a16z).

All told, the caution appears to have paid off, with Brevan now actively backing startups at much more attractive valuations. 

While a number, if not an abundance, of digital asset-focused investments managers oversee funds that now have more assets under management, no known launch has come close to eclipsing Brevan’s fundraising total.

BY: Michael Bodley