Times Online – Paul Marshall, the multimillionaire co-founder of hedge fund Marshall Wace, yesterday defended its controversial methodology, which relies on investment ideas supplied by Citystockbrokers.
In an interview with The Times, Mr Marshall, who is also a Liberal Democrat donor, rejected the notion that the firm’s system  which has helped to earn him a fortune of £200 million could encourage any market abuse.
The firm manages only about $11 billion (£5.6 billion), chicken-feed to a conventional “long only†fund manager, but it is thought to trade a greater volume of European equities than any other fund.
It is reputed to pay out £250 million in commission each year to equity salesmen to ensure that it is in the best position to make the most of a good investment opportunity. As soon as a good investment idea gains currency, the price moves adversely and the potential profits start to evaporate. Even a few seconds can make all the difference.
Of course, Marshall Wace is not the only firm to try to solicit the best investment ideas, but it is the first to do so in such a systematic and scientific way. The methodology is called TOPS and it goes to the heart of the firm’s success. It has also raised the eyebrows of regulators, although the Financial Services Authority recently gave the practice a cautious nod of approval, despite fears that the system might encourage people in investment banks to pass on recommendations based on inside information.
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