Brevan Howard is making money for its billionaire co-founder Alan Howard and other partners through more than just hedge fund fees.
The investment firm best known for running macro trading strategies has persuaded the likes of SoftBank Group Corp., hedge fund Penso Advisors and 15 others to use its high-tech operational infrastructure that once only served as the trading backbone for Brevan Howard’s more than $40 billion in assets.
The Brevan Howard platform, which was spun off in 2018, is similar to the pioneering Aladdin software that BlackRock Inc developed. The unit, called Coremont LLP, has grown to service more than $50 billion in assets for mainly alternative money managers trading everything from stocks and bonds to cryptocurrencies, Jev Mehmet, its chief executive officer, said in an interview.
“What was built is scalable, so we thought there was definitely mileage in extending the platform to the wider investment community,” he said, adding that he expects to double assets and clients in three years.
From offering bespoke investment strategies and prized research to letting external clients use the plumbing that drives trading, hedge funds have been laboring to ease pressure on revenues as investors demand a better deal from an industry notorious for charging high fees.
For Brevan Howard, the additional revenue, a few basis points of every $100 that goes through Coremont, is a vital source of fees after it saw a vast majority of its hedge fund assets flee since the peak in 2013. Assets have only now started to rebound from a low of about $6 billion two years ago after the firm posted one of its best-ever gains last year.
Record Gain
When Mehmet formalized the idea in 2017 of externalizing the platform and persuaded Howard to spin off the service, he found it wasn’t a tough sell.
Back then, Brevan Howard was under pressure from years of mediocre returns. Clients were fleeing. Howard had been forced to cut fees and fire dozens of staff. The firm, after reversing its decision to focus on its main fund, had started giving its star traders their own money pool to run.
“I identified that our platform, driven by our proprietary analytics, was our crown jewel and Alan did not take much persuading at all about the merits of going forward with this,” Mehmet said.
Aladdin’s Success
BlackRock’s Aladdin, which services trillions of dollars for institutions to manage their portfolios and understand risk exposures, has shown how lucrative the business can be. Developed as a tool to help BlackRock measure its own financial risk, the firm now sells the software to rival asset managers and other institutions.
Aladdin has become a prized product at the world’s largest asset manager. In 2020, BlackRock earned more than $1 billion in technology services revenue, a category that includes sales of Aladdin software.