A tough 2013 is casting a shadow over BlueCrest Capital Management LLP, one of the most successful hedge-fund firms of the post financial-crisis era

Michael Platt’s BlueCrest Capital Poised for Rough Close to 2013

Hedge-Fund Firm Had Tough Year Amid Paucity of Clear Trends to Wager on

GREGORY ZUCKERMAN

Dec. 18, 2013 8:01 p.m. ET

A tough 2013 is casting a shadow over BlueCrest Capital Management LLP, one of the most successful hedge-fund firms of the post financial-crisis era. The firm, founded by former J.P. Morgan Chase & Co. traders Michael Platt and William Reeves, more than tripled in assets under management between 2009 and the end of 2012, to $35 billion.Institutional investors such as pension funds flooded into the firm, attracted to outsize returns generated by Mr. Platt’s interest-rate-focused fund, BlueCrest Capital International, and a computer-driven fund called BlueTrend that is overseen by Brazilian-born Leda Braga, one of the highest-paid women in the hedge-fund business.

But 2013 is turning into the worst ever for the firm, which has offices in London, Geneva, New York and other cities. Ms. Braga’s fund, which manages about $16 billion, is down about 10%, through early December, amid a paucity of clear trends for the fund to wager on. Though rival funds with similar strategies also are meeting problems, the BlueCrest fund has done worse that many competitors.

Meanwhile, Mr. Platt’s BlueCrest Capital International fund, which also manages about $16 billion, is flat on the year, even as the average hedge fund was up over 11% this year through November, according to the Hennessee Group LLC. A few other BlueCrest funds, including a credit fund, are up for 2013.

One mistake, according to an investor who has spoken with the interest-rate-focused fund’s top executives: Parking too much excess cash in longer-term bonds, rather than short-term Treasury bills or other safer investments. This choice led to losses in this fund when interest rates shot up this summer after the Federal Reserve hinted that it could raise rates.

As for BlueTrend, some of its recent problems stem from the fact that markets are more dependent on moves by the Fed and other central banks, making it hard for firms that rely on models. On Wednesday, for example, the stock market soared when the Fed signaled it will begin reducing its involvement in bond markets.

The losses add to the wariness some investors have with quantitative funds like BlueTrend, which can be harder for investors to become comfortable with.

“Blue Trend has an admirable long-term track record, but it can be challenging for an investor trying to understand how performance is achieved because it’s a somewhat opaque strategy,” says Matt Litwin, director of research at Greycourt & Co., a Pittsburgh-based investment firm that invests $9 billion in hedge funds and other firms.

Rather than retrench, BlueCrest has borrowed money to buy back shares held by rival Man Group and to launch a hiring spree unmatched by most rivals, as BlueCrest expands into new areas including equities. In New York, the firm is moving into much-larger offices in the prestigious General Motors building in Midtown Manhattan.

In just the past few months, the firm has hired several traders who had left SAC Capital Management LP. Earlier this year, BlueCrest hired equity traders including Christian Dalban, a former Nomura executive. The firm also has hired about 25 traders for its Blue Crest Capital fund over the past two years, doubling that team, which focuses on credit and emerging markets.

Among the notable hires: John Silvetz, who was a managing director at Deutsche Bank AG.

BlueCrest is wagering that as banks exit proprietary-trading activities, encouraged by the new Volcker rule that limits how much trading risk banks can take with their own money, BlueCrest will be able to hire top talent and expand into new markets.

People close to the firm say they are confident the models the BlueTrend fund relies on eventually will work, as they have in the past. The BlueTrend fund is up about 11% on an annualized basis since it began in 2004, after fees.

For now, investors have been patient. It helps that BlueTrend was up about 43% in 2008 even as financial markets collapsed, and Mr. Platt’s fixed-income fund showed a 2009 gain of about 45%. The two funds also have been winners in recent years.

But the flow of new money is slowing and there are signs some clients are getting restless. Persimmon Capital Management LP, a firm in Blue Bell, Pa., that manages $200 million and invests in some top hedge funds, says it is pulling its investment in BlueTrend, amid this year’s struggles.

“We’ve been more than patient,” says Gregory Horn, Persimmon’s president.

His firm’s move to withdraw its investment is largely due to BlueCrest’s huge growth, which Mr. Horn says raises questions about whether the impressive gains in recent years can continue.

“We have a lot of respect for them, but sometimes assets just get too large,” says Mr. Horn, who adds that his firm is shifting money to some of BlueTrend’s rivals.