LONDON Brevan Howard's emerging market hedge fund, one of the world's largest, is nursing big losses after the recent sell-off in developing market stocks, bonds and currencies, two sources who have seen the numbers said.
The $2.7 billion (1.7 billion pound) Emerging Market Strategies Fund, run by Geraldine Sundstrom, is down 11.6 percent to June 14, the sources said. This includes a 4.8 percent drop this month.
The losses are big for Brevan, a $40 billion firm that prides itself on stringent risk controls. Its flagship Master Fund, for example, has never had a losing year since launching in 2003.
Brevan declined to comment.
Federal Reserve Chairman Ben Bernanke last month signalled that the U.S. could slow its quantitative easing programme earlier than expected, sparking a rush by investors to exit emerging assets previously buoyed by the flood of cheap money.
Emerging equities hit an 11-month low last week while the difference between the cost of emerging sovereign debt and U.S. treasuries hit its highest level in a year.
The average emerging markets hedge fund appears to have avoided most of the falls so far, however, and is up 2.8 percent this year to June 17, according to Hedge Fund Research.
In an industry which stakes its reputation on an ability to make money in all markets, Brevan is renowned for taking a particularly tough approach to underperforming traders and to funds which are not as successful as planned. It has shelved funds in the past that did not work out, including small ones focused on Indian stocks and on water.
While those managers who make the firm money are rewarded with extra capital for trading, losing traders see their allocated capital shrink and - if losses are too steep - may face the exit.
Last week, the lead manager of Brevan Howard's $570 million currency fund was among a number of traders who left the company because of poor performance, although a source with knowledge of the matter stressed the departure was amicable.
Twice a year the firm undertakes an across-the-firm review of its traders and their performance.
Despite the losses, Brevan's emerging markets Fund has still produced an annual return of more than 5 percent since its 2007 launch, performance data shows. Last year it made 14.1 percent.
Brevan's $27.9 billion Master Fund, a so-called global macro fund, is also having a tough month and had lost around 3.6 percent by last Friday, but it is still up 3.2 percent for the year, the sources said.
Following Bernanke's comments many funds quickly found themselves on the losing side of bets on U.S. bonds, the Japanese yen and the Nikkei - positions which had banked them profits earlier in the year.
(Reporting by Tommy Wilkes; Editing by Elaine Hardcastle)