Brevan Howard Scores the Largest Crypto Hedge Fund Launch Ever

Brevan Howard Asset Management has completed the largest crypto hedge fund launch to date.

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

The fundraising by BH Digital, the entity that oversees Brevan’s voluminous crypto trades, will annually rank among the upper echelons of even conventional hedge fund strategies. By digital asset standards – bearing in mind that total market values ​​are far lower – it’s an “absolutely massive” result, one source said.

In addition, early performance has weakened the competition, according to another source.

The blended vehicle, the Brevan Howard Digital Asset Multi-Strategy Fund, lost just under 4% to 5% from its inception to 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 cryptolenders such as Celsius and Voyager, locked price action and liquidity in respective death spirals.

“Their returns, relative to the market, are incredible,” one source said.

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

Using a multi-manager and multi-strategy approach, the flagship limited partner puts capital to work via both venture capital-style plays and liquid crypto. More than 60 employees 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” containing supporting analysts and engineers. In addition, the division now has more than 20 external blockchain engineers working on full-time containers.

Brevan Howard still has dry powder ready for deployment

It is by far the largest commitment to crypto by a traditional financial asset manager. The globally macro-focused Brevan manages around $23 billion in total across a wide range of asset classes.

The scale of the expensive fledgling operation reflects founder Alan Howard’s long-standing and deeply rooted bullishness on digital assets, even as Howard has stepped back from day-to-day oversight. His family office has invested heavily in a number of now high-profile crypto startups, including Polygon.

BH Digital has not fully deployed the capital – in part, perhaps, to explain its relatively strong performance – but the portfolio managers have clearly put significant sums to work.

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

Cryptocurrencies—especially as they move away from industry stalwarts bitcoin and ether—are often akin to small- or mid-cap stocks. Building a significant long or short leg in such an asset is difficult to accomplish quickly without affecting the 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 cap is expected to rise soon as the unit adds investment professionals and brings new sets of strategies to market.

The Brevan Howard Digital Asset Multi-Strategy Fund remains open to outside capital, subject 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 historically have exclusively backed traditional financiers.

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

Hours the market

The fund’s current assets do not appear to reflect proprietary capital provided by BH Digital partners or from Howard himself.

Both pots of money can largely move the needle on how much the division actually trades. The firm is known to have committed at least several hundred million dollars – and perhaps more – of its own money to the endeavor.

In the case of private bets, the vehicle imposes a cap of 50% of an investor’s total portfolio. Investor returns have been affected by when they have backed the firm, shifting their exposure to venture capital. The portfolio as a whole now consists of less than 10% of venture investments.

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

All in all, the caution seems to have paid off, with Brevan now actively supporting startups at much more attractive valuations.

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

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