What it was like at BlueCrest, according to the UK Supreme Court

What's life like at BlueCrest, the hedge fund which in 2015 became the family office of veteran macro trader Mike Platt? Today's ruling from the UK Supreme Court offers some incontrovertible insights that are unusual for a secretive family entity.

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If you're in a position to join Platt's place, the Court's insights are these. They apply to the years 2015-2019; things may have moved on.

Assets under Management (AUM): Four years ago, BlueCrest was managing £3.9bn.

Mike Platt is/was the ultimate authority : At BlueCrest Capital Management Ltd., which is the general partner behind BlueCrest LLP, Mike Platt is the CEO, the CIO and the principal investor. "Essentially we have one client," one BlueCrest portfolio manager (PM) told the court. 

Between 2015 and 2019, there was a second principal investor, Andrew Dodd, the CFO, who has since retired. "Mr Platt clearly had the lion's share [of investments]," the court observed. 

A five person executive committee made the big decisions: Platt and Dodd were not alone. BlueCrest had a five person group executive committee (including Platt and Dodd), which decided capital allocations to individual PMs, monitored their performance, looked at their positions and developed a risk framework. This met around 10 times a year.

When it seemed that being on the executive committee might be a way of convincing the UK government that BlueCrest partners didn't need to pay income tax, BlueCrest increased the size of the committee to 20 people.

BlueCrest liked risk and it liked leverage: Since going private, BlueCrest has had a greater risk appetite and has been willing to use above average leverage. This makes risk management more important there.

BlueCrest had three types of partner: Infrastructure partners (tech, facilities, legal, compliance), portfolio managers, and other front office people like desk heads who may also run their own books. 

Portfolio managers at BlueCrest had a lot of flexibility: The court judgement says BlueCrest PMs were not given a fixed amount of cash but were told how much risk they can take on. They had discretion over how to invest this within compliance, risk and regulatory parameters. Some of the PMS had allocations of $100m+. PMs were also involved in hiring and firing existing staff. 

Meetings were ad hoc: An earlier tribunal found that BlueCrest has an "informal approach to management, with many decisions being made outside the context of formal meetings." PMs with large capital allocations have a larger influence over the decisions.

BlueCrest was only paying 18% of profits to PMs: BlueCrest is known for paying traders 30% of their profits. During the period scrutinised by the Supreme Court, though, PM pay was typically based on 18% of profits, from which costs were then deducted. If BlueCrest's overall profits were less than the allocations it was making to individual PMs, then individual PMs could have their pay cut. This never happened. 

BlueCrest was in court because it was arguing that its partner level portfolio managers didn't have to pay income tax because they were making strategic decisions and exerting "significant influence" over the company as self-employed owners. The court found this wasn't so. Now BlueCrest owes £200m in income tax and employer's national insurance contributions. BlueCrest has responded petulantly, stating: "...the UK is no longer a serious contender as a jurisdiction in which to do business..."

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