The managers of BH Global take a defensive stance and, alongside its in-house focus and listed status, the trust has enough diversity, low volatility and flexibility to perform in all conditions.
The history of BH Global goes back to the change in listing rules which allowed funds of hedge funds to be created as closed-end funds. “Brevan Howard decided they would like to pursue the creation of a listed vehicle,” says BH Global’s chairman, Lord Turnbull, who was formerly secretary of the cabinet and head of the home civil service. “They created a listed vehicle investing in the BH Master fund, which came into existence in 2007. They approached Ian Plenderleith [former member of the Bank of England Monetary Policy Committee] to be the chair with a group of Guernsey non-execs. The trust traded at a small premium. So they said let’s have a multi-strategy fund. They looked around for a chairman and they approached me and I agreed to take it on.”
BH Global is a Guernsey domiciled** fund of hedge funds which is listed on the London Stock Exchange and invests exclusively in Brevin Howard funds. Turnbull describes the trust as trying to be a bit like a fund of funds but without the disadvantages, such as non-tiering of performance fees. Initially, BH Global invested in five BH funds, with the Credit Catalysts Master fund added to the portfolio at a later date. “There’s another one on commodities which we are monitoring to see if it meets the standards we want,” adds Turnbull. (article continues below)
He says accessing only in-house funds provides enough diversification. “You can have one or even two out of the five, now six, struggling and the others doing well. The Master fund has done consistently well. Equities have grown the least but its strong virtue in the major collapse of equities is it hardly lost any value. [BH Global] has good prospects of low volatility but has also been able to pursue sectors, geographies and styles of trading which look promising. We’ve gone through a phase of risk on/risk off – either blind panic or euphoria. We think it does give sufficient diversification. Brevan Howard is huge, with some $31.6 billion (£20.0 billion) in assets under management. Within that group naturally we’ve got a big pond to fish in so I don’t think it’s a constraint. I don’t think we suffer; indeed, we benefit from their attention.”
Investment decisions are made at two levels. An investment committee, which operates out of Jersey decides on the allocation across the six funds, but Turnbull says that over time few big decisions have been made. “Equities have shrunk a bit and Credit Catalysts has come in, but the real decisions are made at each fund level by the fund managers. The only decision we make might be how much cash to hold. We have the responsibility of discount management through the power of buying shares which we used in the early part of 2009, but this is used sparingly. At the moment it’s not an active consideration.” The discount on the trust has broadly been in the 3% to 5% range, currently standing at 4.5% on the sterling share class.
”Managers have a lot of their own money in there and they hate losing money”
What drives the trust’s allocation, says Turnbull, is a sense of what the opportunities are that each manager sees. “It’s all about the opportunity and the overall risk. Now isn’t a time, they feel, to plunge very confidently and highly levered into particular trading opportunities. Partly those risks are very political in nature. What will happen to the euro? Will we have a double dip or not? We have a board meeting at which one of the managers gives us an account. We keep abreast of what they’re up to but we don’t follow individual trades.”
The trust is defensively positioned. “Preservation of value is a priority,” says Turnbull. “A lot of people lost a lot of money in May. There were one or two cases where Brevan Howard had to pull out of a particular trade. It has a strict discipline – if it doesn’t think it’s working, close it down and move on. In that way there are some months when the net asset value has gone down but none have been significant. Some people are more directional and have bigger bets, but that’s not really the BH style. People think hedge funds are big risk takers but the better of the macro funds are risk attentive. Managers have a lot of their own money in there and they hate losing money.”
For the trust’s positioning to change dramatically, Turnbull says there would need to be a set of trends demonstrating that the recovery in Britain is going to last. “The other trend is to start looking at anomalies. But when the trend itself is unclear it’s a time to stay cautious and relatively liquid. We’re not quite at the point where we can completely rule out a double dip. There was a big frisson when the message from the Fed came on quantitative easing; a very sharp reaction. If you were heavily in the other direction you would have to quickly pull your horns in.”
**Note: This article was corrected on October 5. BH Global is a Guernsey investment trust and not one domiciled in the Cayman Islands as stated in the original article.