Howard: 'Regime Shift and Dislocation' to Present Exceptional Opportunities in 2016

Jan 29 2016 | 8:02pm ET

Brevan Howard co-founder Alan Howard believes 2016 will offer “exceptional” opportunities” to generate profits due in part to the bifurcation of global monetary policy between the central banks of the U.S. on one hand and Europe, China and Japan on the other.

“The central bank policy divergence that we have been anticipating for over a year has now finally arrived, and I am confident that this will materially improve the opportunity set for us,” Howard wrote in a letter to shareholders of BH Macro, a closed-end listed fund that invests substantially all its assets into Brevan Howard’s flagship macro hedge fund.

At the same time, the slowdown in economic growth that some fear is accelerating will diminish the impact of tools such quantitative easing, while market volatility and deflationary pressures increase, Howard believes.

As for China, Howard stressed that the Peoples Bank of China is in the difficult position of needing to balance a depreciation of the yuan with the need to provide the easier monetary conditions necessary to allow what he terms “a non-disruptive deleveraging process.”

Such a dilemma offers “no comfort” to global markets, Howard wrote. Meanwhile, it would require “the risk of a true crisis” for the Fed to reverse course from its December rate hike soon, he said. 

Nonetheless, Howard is optimistic about 2016. “Although we begin the year with very low levels of risk, I believe that some exceptional opportunities are likely to present themselves in this environment of regime shift and dislocation," he wrote in the letter. "We look forward to exploiting a rich opportunity set in the year ahead.”

Brevan Howard’s Master Fund lost 3.9% in December and 2% for all of last year, according to Bloomberg, its second consecutive annual decline. The London-based firm managed $25 billion as of November 2015.

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