BlueCrest Shrinks From Relative-Value Trades Amid Losses, Exits

(Bloomberg) -- Michael Platt’s BlueCrest Capital Management pulled back from a complex debt-trading strategy that led to losses and the departures of at least two traders, people familiar with the matter said.

BlueCrest has reduced the size of its so-called relative-value trading book, which seeks to exploit anomalies in related securities, and cut risk across the firm by about $1 billion in recent weeks, one of the people said. Raymond Wang and Romain Denis, traders who focused on such deals, left after their portfolios slumped, the people said.

The fallout from the spread of the deadly coronavirus has tripped up some of the world’s biggest asset managers, including H20 Asset Management, as they struggle with historic levels of price moves across financial markets. Others have gained from the turmoil.

While BlueCrest suffered some losses since the sell-off, the investment fund was up for this year through close of trading on Wednesday, one of the people said. Some of the relative value losses in Wang and Denis’ portfolios may not have been realized and may have since recovered, said one of the people.

A BlueCrest representative declined to comment, as did Wang and Denis.

Relative-value trades involve trying to profit from small differences in the prices of similar assets, such as two different Treasury bonds or a bond versus a future. To boost profitability, portfolio managers tend to employ substantial leverage. As such, they rely on the steady availability of financing and a relatively stable relationship between the securities in portfolio. Losses can mount quickly when volatility increases sharply, as it has in recent weeks.

The CBOE Volatility Index soared in recent days amid investor panic that the spreading disease will tip the global economy into a recession. A benchmark that tracks price swings in the U.S. Treasuries market has also surged.

Wang joined BlueCrest from Royal Bank of Canada last year and he focused on relative-value trades tied to Treasuries in New York. Investors have flocked to the debts as they seek out safe assets, pushing their yields down to record lows. Denis was based in London and previously worked at Nomura Holdings Inc., according to his LinkedIn profile.

Platt’s firm was once one of Europe’s largest hedge funds, overseeing more than $37 billion at its peak. BlueCrest produced more than $22 billion in trading profits for investors over the course of 15 years running client money.

In December 2015, the firm said it would return client money and, since then it has borrowed more money to juice returns. It surged 50% last year and made 25% in 2018. Returns in 2017 stood at 54% and almost 50% the year prior.

--With assistance from Stefania Spezzati.

To contact the reporters on this story: Nishant Kumar in London at nkumar173@bloomberg.net;Donal Griffin in London at dgriffin10@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Sam Mamudi, Josh Friedman

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