Platt’s $50 Billion Hedge-Fund Dream DeferredLindsay Fortado, Max Abelson and Saijel Kishan
When billionaire Michael Platt flew to the Middle East in September 2013, he was running one of the world’s largest hedge funds. He wanted to make it bigger.
He told investors at the region’s sovereign-wealth funds that his BlueCrest Capital Management LLP was doing great, according to someone briefed on the discussions. Platt described how he would expand the firm, whose assets had peaked that May at more than $37 billion, to $50 billion, the person said.
Today, BlueCrest is managing half that amount and will lose about $8.9 billion more when quant-trading head Leda Braga leaves with her funds to start her own business in January. Platt, 46, is facing hundreds of millions of dollars in withdrawals, lackluster returns in his main fund, questions about an employee-only fund and two advisers who say the firm lacks transparency, with one telling clients to pull out.
Aksia LLC, which advises funds and pensions including the New York City Employees’ Retirement System, cut its rating of BlueCrest to uninvestible, a person with knowledge of the move said last week. The consulting firm got less information over the past two years despite multiple warnings it wanted more, and responses were vague and uninformative, the person said.
“We had long discussions, we’ve answered their questions as well as we can,” BlueCrest Chief Financial Officer Andrew Dodd said in an interview. “Our investors understand that our business contains proprietary information and not every request can be answered.”
The firm’s primary focus has never been about increasing assets under management, Dodd said, adding that Braga’s departure was “categorically a collective decision.” Ed Orlebar, a spokesman for London-based BlueCrest, declined to make Platt and Braga available for comment.
Platt, who some colleagues called the best trader they’ve ever met, can be remote and impatient, according to half a dozen people who have worked with him and asked not to be identified because of the firm’s confidentiality rules. One banker said Platt moves so quickly from project to project that it can unsettle investors and distract him from day-to-day management.
Some bankers who do business with BlueCrest say they have never spoken to him and were in contact with two deputies or Braga instead. Investors watched Platt introduce himself several years ago to BlueCrest’s risk manager, not realizing who he was, according to a person who witnessed the exchange.
“If you weren’t prepared to put your trading guts or intellect on the line, he’d savage you,” said David Tait, an early BlueCrest hire who went on to head foreign-exchange globally for Credit Suisse Group AG. “If you’re not that sort of character, you’re going to get run over.”
Lucy Heller, chief executive officer of Absolute Return for Kids, a London-based education nonprofit where Platt is a director, called him “tough, demanding and focused.” On a board with at least three Goldman Sachs Group Inc. alumni, he spurns chitchat and paperwork, she said.
“It’s ‘deliver the results, tell me about this quickly,’” Heller said. “It’s a general and good impatience with getting to the point.”
Platt shared his thoughts on leadership in “Hedge Fund Market Wizards,” a 2012 book of interviews that featured him.
“I look for the type of guy in London who gets up at 7 o’clock on Sunday morning when his kids are still in bed and logs onto a poker site so that he can pick off the U.S. drunks coming home on Saturday night,” Platt said. “I hired a guy like that. He usually clears 5 or 10 grand every Sunday morning before breakfast.”
Platt co-founded BlueCrest, now Europe’s fourth-largest hedge-fund firm, in 2000. Braga, a 48-year-old Brazilian with a doctorate in mechanical engineering, joined the following year. She manages systematic-trading fund BlueTrend, which uses computer models to decide when to buy and sell securities. Braga owns less than 5 percent of BlueCrest, U.S. filings show. The firm will maintain a stake in her new Systematica Investments.
“It will be better-positioned to grow faster as a separate and independent business,” Dodd said.
News of BlueCrest’s proprietary fund surfaced when Albourne Partners Ltd., whose clients include pensions and endowments, said in February it learned the firm has a $1.5 billion internal fund called BSMA Ltd. Citing concern that it could lead management to put its interests ahead of investors, Albourne lowered its rating.
BlueCrest has procedures in place to protect against conflicts of interest across all of its hedge funds, including BSMA, Dodd said at the time.
“They’re entitled to their view,” Dodd said. “At some point, however, lines have to be drawn in terms of providing information which is proprietary.”
BlueCrest saw assets fall to about $25.2 billion last month from $27.1 billion at the beginning of September, according to an investor update seen by Bloomberg News. About half a billion dollars of redemptions this year will come from investors including the Indiana Public Retirement System and the Pennsylvania Public School Employees’ Retirement System.
The Indiana pension fund is pulling $193.5 million it had invested in BlueCrest International and BlueTrend “due to other opportunities that are expected to constitute a better long-term fit,” according to an investment update presented to its board Oct. 31. A spokeswoman for Pennsylvania’s retirement fund cited performance issues in an e-mail that day. The New York City fund said it still has about $200 million invested with BlueTrend.
Platt’s biggest fund, $9.5 billion BlueCrest International, which mostly trades interest rates, returned 1.2 percent this year through Oct. 24, after declining 1.6 percent in 2013, a person familiar with the firm said. Macro hedge funds, which seek to profit from economic trends, gained 2.1 percent this year through September after losing 2.2 percent last year, according to data compiled by Bloomberg.
Brevan Howard’s Master Fund, a macro fund run by Alan Howard, is down 2.3 percent through Oct. 24, according to a person familiar with the firm.
BlueCrest’s BlueTrend fund has jumped 8.3 percent this year. BlueMatrix, which Braga also runs, has climbed 7.6 percent, the Multi-Strategy Credit Fund has returned 6.3 percent and AllBlue is up 4.9 percent, investor letters show. The hedge-fund industry posted an average 2.3 percent gain this year through September, Bloomberg data show.
“We feel reasonably good about performance across our funds as a whole, however it’s clearly a tough market for interest-rate trading,” Dodd said. “Our peer funds, the other macro funds, have had a very tough time.”
Platt, the son of a civil-engineering teacher and university administrator, was raised in Preston, in northwest England’s Lancashire County. A graduate of the London School of Economics, he was a proprietary trader for JPMorgan Chase & Co. before leaving to start BlueCrest.
Platt tends to thrive even if others are failing. BlueCrest Capital International returned 45 percent in 2009 as the global financial system struggled to recover from the credit crisis. BlueTrend jumped 43 percent in 2008.
An art collector who helped start a London gallery and has sponsored artists whose work includes a life-size wax gorilla nailed to a cross, Platt is worth about $1.2 billion, according to Bloomberg’s Billionaires Index. He moved from London to Geneva in 2010, avoiding the top British tax rate and taking some of BlueCrest’s operations with him.
He bought a penthouse overlooking New York’s Central Park last year, according to public records. The $11.4 million apartment, listed with three balconies, isn’t his first penthouse in Manhattan. He spent $15 million on four apartments atop an Upper West Side condominium in 2007.
BlueCrest expanded into stocks last year, after ending an earlier try in 2007, and has raised almost $1 billion, according to a person with knowledge of the matter. The fund, which began trading in July 2013, has returned more than 9 percent annualized as of Sept. 30, the person said.
Platt used a $750 million loan to hire equity traders. Four of them were fired in September after their performance lagged, according to a person with knowledge of the firm. At least one of the people had worked there for less than seven months, another person said.
After spending little time with the equities traders, Platt was in the New York office on the ninth floor of the General Motors Building to fire them, the person said. Known to cut a trader’s capital in half after losses of 3 percent, he cited profits generated by equities traders in Europe that were many times those of their U.S. counterparts.
Platt is focused on not losing money, Dodd said.
“Mike’s fundamental philosophy when he’s trading his own book, is if a trade is going wrong, it’s going wrong, and it should be cut,” the CFO said. “As a result, when it comes to managing our business, we have tight stops. We are very rigorous on risk management. If we decide we don’t like a trader’s risk, then departures can be slightly abrupt, but the important thing is it’s a core part of our investment process.”
Figuring out that process began at an early age for Platt.
“When I was 10 years old, my dad gave me a Rubik’s Cube, and 36 hours later I could do it from any position in under one minute,” Platt said in the 2012 book. “I always regarded financial markets as the ultimate puzzle because everyone is trying to solve it, and infinite wealth lies at the end.”