How BlueCrest’s Michael Platt fell foul of the UK taxman
The billionaire hedge fund manager has a history of making big bets. Not all of them have come off
Hedge fund manager Michael Platt is used to winning. His appetite for risk and ability to take outsized bets has helped make him one of the industry’s most successful traders and among the UK’s richest people.
But a high-stakes battle against the country’s tax authorities has ended in defeat after the UK Supreme Court this week dismissed an appeal by his family office BlueCrest Capital Management that could cost it £200mn.
BlueCrest has claimed the ruling shows “the UK is no longer a serious contender” as a place to do business because firms cannot rely on HMRC guidance to structure their tax affairs. Platt himself has lived in various tax-friendly jurisdictions, including Geneva, Jersey and the United Arab Emirates, and moved the group’s headquarters to Guernsey in 2010 days before the UK government’s new top rate of income tax took effect.
Hedge fund executives and lawyers acknowledge that firms will have to examine how their current arrangements measure up against the Supreme Court ruling. But they also agree on one other thing: BlueCrest used a particularly aggressive structure not widely replicated among its peers.
“[BlueCrest’s] positioning is on the more aggressive side compared to what we see in the market,” said one lawyer who helps set up these partnerships. A hedge fund executive at a multibillion-pound firm called the BlueCrest set-up “crazy”. Another said it was “wacky so people never really followed suit”.
BlueCrest has a colourful history, even if the Preston-born trader Platt has spent years seeking to avoid the spotlight. BlueCrest did not respond to requests for comment for this article.
Platt co-founded BlueCrest at the turn of the millennium after leaving JPMorgan Chase and over the next decade built it into one of Europe’s largest hedge funds.
In part, that was thanks to the firm’s superior returns during the financial crisis. But it also went to considerable efforts to ensure its traders were well rewarded.
One way it did that was through a so-called partner incentivisation plan, set up in 2008 to retain top traders. The scheme redirected part of BlueCrest partners’ profits to a corporate entity, which paid the corporation tax, before later returning the money as deferred “special capital”, reducing the traders’ tax bills.
That arrangement also attracted the attention of tax authorities, and in 2023, the firm lost a legal fight when a tax tribunal agreed with HMRC that the money paid back to the partners was taxable income. Platt and BlueCrest later sued their tax lawyer in that case for professional negligence.
A second way BlueCrest incentivised its traders in its earlier years was by setting up an internal fund for employees, called BSMA.
Like many hedge funds, BlueCrest pulled in money from large institutional investors who by 2013 had helped its assets grow to over $36bn.
But the firm faced increasingly dissatisfied clients after a run of poor performance, a feeling that was exacerbated when they discovered many of the top traders had been moved to BSMA while external money was managed by an underperforming algorithm.
BlueCrest was later ordered to pay $170mn to former investors by the US Securities and Exchange Commission and $101mn by the UK’s Financial Conduct Authority for failing to disclose the conflict of interest, though it did not accept any wrongdoing.
By 2015 BlueCrest had haemorrhaged billions of dollars and Platt, frustrated by the restrictions imposed by external investors, announced he was returning outside money.
This marked a turning point for the firm both in terms of performance and his influence over the business with the fund now largely managing his own wealth.
BlueCrest has posted average annualised returns of more than 50 per cent since. But Platt’s outsized role at the firm would later become a problem for BlueCrest’s traders in the dispute with HMRC that the firm lost this week.
There are usually tax advantages — both for individuals and firms — of being deemed a self-employed partner rather than an employee. To stop employers shirking on their taxes by pretending employees are partners, the UK government introduced rules in 2014 which set out the test for whether someone is really a “salaried member” instead of a true partner of a limited liability partnership.
BlueCrest had more than 80 members in its partnership, an unusually large number that included 48 portfolio managers. It tried to argue that they were partners, because they shared in the LLP’s profits — and losses — as true partners do, and because they had significant influence over the LLP’s affairs.
The first problem for BlueCrest’s traders was that, according to the court, most of their pay was based on the profit they made from their own trading books — “discretionary allocations” — not how the firm did overall.
“Trying to push discretionary payments through the partnership tax breaks was always going to fail,” said another senior hedge fund executive.
The second problem was Platt. “Essentially we have one client, which is Mike,” Nicholas Moore, a former portfolio manager at BlueCrest, said in evidence provided to the court during the latest HMRC dispute. “He’s able to move the goalposts . . . he’s the top of the organisation.”
That made it difficult to argue that dozens of people could have a significant influence over the firm.
“The nature of the business, particularly following the changes around Mike Platt’s influence, is not a factor that is going to be out there in a majority of situations,” said the lawyer.
The Supreme Court knocked BlueCrest back on both counts.
The judgment brought another round of unwanted publicity to a man who has spent the best part of two decades cultivating a reputation as one of the industry’s most private figures — with one notable exception.
Platt became the talk of Wall Street and a viral sensation in 2019 when he was filmed in a spoof video bragging about his wealth to a taxi driver in New York. “I’m the highest-earning person in the world of finance,” he told the driver.
Six years later, the billionaire has found there is one opponent his firm has struggled to beat: HMRC.