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BH Macro Limited - Investment Management Agreement

·5-min read

BH MACRO LIMITED (the “Company”)
(a closed-ended investment company incorporated in Guernsey with registration number 46235)

LEI: 549300ZOFF0Z2CM87C29

22 January 2021


Investment management agreement

The Board of BH Macro Limited announces that it has received a letter from Brevan Howard Capital Management LP, the Company’s manager, which is set out in full below.

The Board will consider its response and consult with shareholders. A further announcement will be made in due course.

Letter from Brevan Howard Capital Management LP to BH Macro Limited

21 January 2021

Dear Directors

Further to discussions between us which started in the first half of last year, we write to set out clearly our position as the manager (the “Manager”) of the Company.

Since its launch in 2007, the Company has had a strong track record, substantially outperforming equity markets with significantly lower volatility and with a history of delivering higher performance when equity markets have declined. Since launch until the end of 2020, the largest share class of the Company has had an annualised rate of return of 9.1%, an information ratio of 1.08 and a total return of 233.7%, with an annualised volatility of 8.5%. Over the same period1:

  • MSCI World Index had an annualised rate of return of 6.5%, an information ratio of 0.4 and a total return of 139.7%, with an annualised volatility of 16.4%.

  • The FTSE 100 had an annualised rate of return of 4.1%, an information ratio of 0.29 and a total return of 74.7%, with an annualised volatility of 14.2%.

The Company has exhibited low correlation to other asset classes, creating true diversification for portfolios, a quality that was amply demonstrated during the market turbulence of 2020. The Company offers investors unique access to one of the world’s leading hedge funds, Brevan Howard Master Fund Limited (the “Master Fund”), which has demonstrated its quality over nearly two decades.

As the Board will be aware from recent discussions and meetings, we have invested heavily across a number of areas in building Brevan Howard in recent years as we look to invest for the future and seek to maintain and develop an industry-leading business. While we continue to invest significantly in attracting and developing the best possible talent and also strengthening our technology, systems and infrastructure that support them, it is essential that we are supported by all of our investors, via their respective fee structures, to maintain the quality of our platform. Noting the exceptional performance of the Master Fund, the substantial ongoing investment and the increasingly competitive environment, we have concluded that the management fee concessions agreed in 2016 and 2017 no longer support the future success of the Company. We therefore propose that these concessions be withdrawn and the contractual fee terms are adjusted back broadly to their prior position.

Specifically, we propose the following changes:

  • That the fixed component of the fee paid to the Manager (the sum of the management fee and the operational services fee) is raised to a level of 2% per annum, somewhat lower than the 2.5% fee level that was paid by the Company for most of its life, prior to 2017.

  • That the notice period is extended to 12 months, shorter than the 24 months’ notice that applied until 2017.

  • That share repurchases or redemptions in excess of an annual allowance, being 5% of the shares of that class in issue as at 31 December in the prior calendar year (the “Annual Buy Back Allowance”), in any calendar year attract a fee payable to the Manager of 2% of the repurchase price.

  • That a mandatory liquidation shareholder vote is automatically triggered if the Company NAV is lower than $300 million at the end of any calendar quarter. Were any such vote to be passed, the Company would be liquidated and an amount equal to 2% of the Company NAV (net of the Annual Buy Back Allowance for the relevant calendar year that remains unused) would be paid to the Manager.

These terms (the “Proposed New Terms”) represent the minimum level for us to continue to manage the Company as we build for the future in competition with our industry peers. We believe that the reversion of the fixed fee to levels similar to those that applied for the majority of the Company’s existence, together with the other proposed changes, will give us the needed flexibility to manage and grow one of the world’s top performing hedge funds.

We request that the Board convene an extraordinary general meeting (“EGM”) of shareholders as soon as practicable to consider approving the Proposed New Terms by way of a notice of EGM with a circular setting out details of the proposal (the “Notice and Circular”). We would welcome the opportunity to work with the Board and its advisors to assist in the production of the Notice and Circular.

In the event that the Notice and Circular are not published on or before 17 February 2021, except in the case of delay attributable to any necessary regulatory steps being completed, the Manager intends to serve notice of termination of the Management Agreement with the Company and the Company’s investment in the Master Fund will be redeemed.

The implementation of the Proposed New Terms will allow us to strengthen and grow the Company. We sincerely hope that shareholders provide support to the Proposed New Terms and permit us the opportunity to continue to manage the Company for the remainder of 2021 and beyond.

Yours sincerely

For and on behalf of Brevan Howard Capital Management Limited in its capacity as general partner of Brevan Howard Capital Management LP

1 Company’s performance and statistics calculated using monthly NAV per share data of the Sterling share class. Launch date: 9 March 2007. “MSCI World Index” and “FTSE 100” performance and statistics calculated using monthly returns of MSCI World Net Total Return USD Index and FTSE 100 Total Return Index GBP, Source Bloomberg. Annualised rate of return, volatility and information ratio calculations are based on monthly returns.


Colin Maltby

William Simmonds
J.P. Morgan Cazenove
0207 742 4000