The world’s greatest investors: Michael Platt
BlueCrest hedge fund co-founder Michael Platt is quick to cut his losses, but happy to let his winners run.
Platt was born in Preston in 1968. He began investing while at school, starting with the newly privatised utilities. In 1991, he graduated with a degree in maths and economics from the LSE, and joined JP Morgan as a trader. In 2000 he founded the BlueCrest hedge fund with William Reeves. In 2015, he returned his investors' money. BlueCrest became a family office.
What is his strategy?
Platt splits BlueCrest's assets between systematic strategies (based on pattern-spotting computer algorithms) and discretionary (human-driven) trades. The systematic trades are generally trend-following strategies basically, buying assets that are going up, and selling ones that are falling. He delegates the day-to-day management to his traders, but retains overall control. He believes in aggressive stop losses he will cut traders' allocations drastically if they lose as little as 3% of their capital, but will also lift allocations to winning trades.
Does it work?
Between 2000 and early 2012, BlueCrest returned an average of 14% a year for investors, compared with 3% for the market. At its peak in 2013, assets under management reached $35bn. However, a relatively subdued performance during 2013 and 2014 saw this fall to $8bn shortly before it closed to external investors. Last year it returned 50%, thanks to a decision to increase the leverage (investing with borrowed money) it employs. Platt's net worth has been estimated at $4.5bn.
What were his biggest successes?
In August 2007, spiking interest rates and the huge debts on banks' balance sheets convinced Platt that a stock market crash lay ahead. He sold his bank shares, and bought safe' sovereign bonds. As a result, he both avoided the worst of the financial crisis, and profited from the resulting "flight to quality" and plunge in interest rates (as rates fall, bond prices rise).
What lessons are there for investors?
Risk management is key to successful short-term trading. Strict stop losses limit your downside, vital when using lots of leverage. Platt argues that sustaining large losses can make traders gun-shy, leading to lost opportunities. Because markets have a lot of short-term momentum, selling losers and building up winners can be a good way to boost returns. However, that involves doing many individual trades, which eats up time, can be hard on the nerves, and also raises transaction costs greatly. That makes this a very risky strategy for private investors.