Financial Times Published: April 5 2009 22:04
The government will have to print money to finance public spending, moving quantitative easing to a new level, according to the manager of one of London’s biggest hedge funds.
Mike Platt, co-founder and chief executive of BlueCrest, Europe’s fifth-largest hedge fund, had been predicting quantitative easing in the UK for six months before it was adopted by the Bank of England last month.
But the bond trader said the government, facing plunging tax revenues, now had little choice but to move to “heavy” quantitative easing, printing money to buy new gilts to support public spending. Last month the Bank began buying up £75bn of outstanding gilts and corporate bonds in an effort to support spending by boosting the money supply.
Mr Platt said “significantly” more quantitative easing was needed. “The easiest way for the system to be saved is to print money,” he told the Financial Times. “It is the only policy option left.”
His comments come as many hedge funds, including BlueCrest, are betting that printing money will lead to inflation in the medium term. But unlike many other big funds – including Greenlight Capital, TPG Axon, Paulson & Co and Third Point – he is not putting money into gold, arguing there are “better ways to play inflation”.
BlueCrest’s two main funds are doing well, with its $5.5bn computer- driven BlueTrend up 43 per cent last year while its $3.5bn Capital International, which trades bonds and fixed-income derivatives, up 6.2 per cent, according to investors.
However, it is in the process of closing its $1.1bn BlueCrest Strategic fund after poor performance prompted it to retreat from emerging markets. The fund – once a vehicle for Mr Platt’s best ideas – was hit by heavy withdrawals after losing 21 per cent last year.
The closure comes as many big hedge fund managers are retreating from positions they took in the past few years in order to focus on their core businesses.
“The environment has definitely changed,” Mr Platt said. “Eighteen months ago the emphasis for all firms was growth and expanding into new products. Now very much the name of the game is to focus on your relative strengths and the areas you excel at.”
The fund has already paid out about half its money, and is likely to take another year to close out all positions and repay investors.