Brevan Howard, Europe’s biggest hedge fund group, is to list a hedge fund to invest in credit strategies on the main market of the London Stock Exchange in December. It is Brevan Howard’s third closed-ended listed fund.

The fund, BH Credit Catalysts Ltd, will feature directional and relative value catalyst-driven trading across corporate and asset-backed credit markets. The company, a feeder fund, will invest substantially all of its assets in Brevan Howard Credit Catalysts Master Fund Ltd, an open-ended Cayman-incorporated investment company that launched in June 2009.

“We believe investors will respond well to this opportunity,” said Nagi Kawkabani, CEO of Brevan Howard Asset Management LLP. “The credit market is large and there is not enough risk capital available. Brevan Howard therefore believes that the opportunity set within credit markets for a trading strategy is significant.”

The investment manager of BH Credit Catalysts is DW Investment Management, LP a specialist credit manager based in New York. DWIM manages money exclusively for Brevan Howard under the supervision of Brevan Howard’s risk management team. DWIM’s credit team has a strong track record producing total return performance of 44% in the period from May 2008 to August 2010, a period characterised by some of the most volatile markets in recent history.

BH Credit Catalysts has a fundamental research-driven approach and a catalyst-focused trading style rather than “buy-and-hold” or “deep value” or “carry” basis. The fund is to maintain a high degree of diversification across credit strategies and risk with stop losses applied to individual trades as well as at trader and fund level.

“The DWIM credit team has generated consistently positive returns (quarter-on-quarter) since April 2008 across a wide range of market conditions,” said Kawkabani. “The team’s strategy (applied to BH Credit Catalysts since June 2009) has acted as a diversifier to other credit strategies by demonstrating a low correlation to credit market movements. As a listed feeder fund of BHCC, BH Credit Catalysts should allow a wider range of investors access to this hedge fund credit strategy.”

Shares will be denominated in dollar, euro and sterling currency classes. Fees at the company level are an annual 2% management fee and an annual 20% performance fee, subject to a high water mark. There is also a proposed annual partial capital return mechanism, which may be exercised at the sole discretion of the directors, of between 33% to 100% of annual NAV appreciation and a discount control mechanism with a 5% trigger.  

Brevan Howard manages over $32 billion across 13 funds. It has two funds already listed on the LSE: BH Macro Ltd and BH Global Ltd. 

The bookrunner to the initial public offering is Dexion Capital. The sponsor is PricewaterhouseCoopers LLP.