David Gorton, quantitative hedge fund manager, has landed one of the most sought-after opportunities in Mayfair: leading Brevan Howard’s first foray into algo-driven investing.
The Financial Times says that Brevan gave Gorton and a ‘team’ $300m to set up the ‘Brevan Howard Systematic Trading Fund’ back in March. The fund, which is a joint venture run by Gorton’s new firm, DG Systematic, has returned 9.3% since March.
The move is significant because a) Brevan Howard doesn’t usually do algo trading and b) it doesn’t often seed joint ventures, preferring to work very closely with internal traders to whom it can apply its very rigorous risk controls (although Brevan Howard said that DG Systematic will be on the same platform and that these risk controls will still apply).
Gorton, therefore, appears to have lucked in. His career shows the benefits of starting off at a solid-but-not-necessarily-prestigious name, carving a niche (rates), and staying with it.
A former trader at Chemical Bank
Gorton’s career began 24 years ago at Chemical Bank, where he reportedly started out as a bond trader, specialised in forward rate agreements, and became joint head of Eurobond trading.
A former trader at HSBC
After spending three years at Chemical Bank, Gorton appears to have gone to HSBC where he continued to specialise in forward rates agreements, before being promoted to Chief Dealer for the US, responsible for all rates risk, in 1992.
A former CIO at an internal fund with JPMorgan
Gorton made his first hedge fund move in 2002, back in the days when banks could still run funds of their own with impunity,
JPMorgan hired him as chief investment officer to run its London Diversified Fund. Gorton and his team were successful, allegedly making 550m a year for the bank.
A former casualty
In 2002, London Diversified spun out on its own. Initially, it did well. In 2004, Gorton and two others are said to have shared a 55m payout and the business expanded to around 70 people.
In 2008, however, London Diversified hit a rut: assets under management plummeted nearly 30%. In the year ending August 31st 2009 income fell 76%, no performance fee was charged and 13 partners left.
Gorton’s emergence as Alan Howard’s new favourite suggest he may have given up on London Diversified. It also reflects that the resilience of hedge fund careers, where a few years’ poor performance and an unobtainable high water mark can be eclipsed with a new fund.