Michael Platt is worth $4.5 billion according to Forbes - gains the result of a successful trading career and starting and running a hedge fund for more than 15 years. During that time, Platt's BlueCrest Capital Management grew to $35 billion in assets under management.
The key to Platt's billions - his traders' asymmetrical returns.
This week, in our series of insights from Jack Schwager's Market Wizards, we look at Michael Platt, a hedge fund manager overseeing more than $29 billion in assets. (Read our last piece about Gary Bielfeldt, a trader that built a fortune and became one of the largest players in the U.S. Treasury futures market.)
We're looking to back talented futures traders with $30,000 to $150,000 in buying power.
At BlueCrest, if traders experienced a 3 percent loss, they would have to cut their position size in half. If they had another 3 percent drawdown from there, he would pull all of their funding. That way, the upside was unlimited, but the downside was capped at 5 percent.
As he says, "We want people to scale down if they are getting it wrong and scale up if they are getting it right. If a guy has a $100 million allocation and makes $20 million, he then has $23 million to his stop point." But the kicker for Platt's traders is that every January, the tracking resets. So traders have to scale back down in January as though they have the 3 percent stop in place again.
But how did Platt find these traders in the first place?
Here's what he looks for in his traders:
- An understanding that the market is always right. Platt says that traders need to realize that the market is made up of irrational players. In times of market stress, value is "irrelevant."
- Someone who has an edge. In markets, traders find an edge through a proven strategy, time horizon or different view of markets than other players. For example, Platt said he once hired a trader who would wake up every Sunday morning in London and play online poker against drunk U.S. players. The fact that they were drunk provided him a natural edge.
- Paranoia. Platt also said that he looks for traders who look to hedge their winning trades. "They just have the paranoia," which also helps them manage when they have losing positions.
- Someone who admits when they are wrong. Platt also pointed to the fact that a good analyst or economist is unable to make as much money off his idea as Platt could. That's because they are "dogmatic" and always feel as though they need to be right. He told Jack Schwager that "You find that analysts and economists have big egos, which just gets in the way of making money because they can never admit that they are wrong."
What do you think of Platt's strategy? Have any questions or recommendations? Put them in the comments below.