A very brief guide to becoming a $17bn hedge fund manager
We're a little late with this, but BusinessWeek published an interesting article earlier this week on Michael Platt, co-founder of BlueCrest Capital Management, London's third largest hedge fund.
For those who aspire to follow in Platt's footsteps, or to get a job at BlueCrest by astonishing Platt with their interest in his path to hedge moguldom, the article contains some helpful pointers, as follows.
Start young
Platt was introduced to trading by his granny, who "wasn't like most grandmothers," and was a, "serious equity trader."
At the age of 14, he turned a 500 investment in an obscure shipping company into 1,500 and got hooked.
Don't lose more than 3%
BusinessWeek offers the interesting revelation that BlueCrest's 60 traders are heavily penalized if they lose 3% or more of the money they're managing. If they lose 3%, their allocation of capital is sliced in half; if they lose another 3%, their capital allocation is removed entirely.
This is far more severe than at Brevan Howard, where traders are only subject to risk managers' wrath once they lose 8% or more.
BlueCrest's system appears fairly successful - since 2000 only six traders have been ejected for the 3% transgression.
Suppress your ego
Like Alan Howard at Brevan Howard, who's subject to the loss rules imposed on staff, Platt himself operates under the 3% rule. Personally, he says he's never lost that much: "Ego is how you lose money in this business. I put a trade on, and if it doesn't start working straightaway, I respect the price action and cut it fast."
Start out on a graduate trainee scheme in a major investment bank
Like most successful hedge fund managers, Platt did a stint in an investment bank.
He graduated in maths and economics from the London School of Economics (he begun by reading engineering at Imperial, but left when he got bored) and got a graduate placement at JP Morgan. At JP Morgan he was placed on the derivatives desk, where he traded interest rate swaps, and after several successful years was moved to the prop desk. Two years' later, he set up on his own.
Work with wonderful colleagues
Platt appears to be allied to a hedge fund manager more talented than himself. His Brazilian partner, Leda Brega, achieved returns of 43% in 2008 and 9.4% between January and November 2009.
