Alpha - September 2007 - (Page 57)

Strategies Marshall Wace TOPS in Its Field By Loch Adamson R arely have two hedge fund managers taken opposite sides of a bet and each made hundreds of millions. But Paul Marshall and Ian Wace, the founders of London-based Marshall Wace, have done just that. When they launched their business in 1997, the two partners held fundamentally different views of investment research: Marshall, former head of Mercury Asset Management’s pan-European equity business, thought that the investment calls made by stockbrokers were worthless. Wace, former global head of equity and derivatives trading at Deutsche Morgan Grenfell, maintained that the banks wouldn’t pay for research if it didn’t have value. The partners decided to settle their long-running debate in 2001 by designing a system that, in a highly disciplined, quantitative way, would measure the accuracy of the sell-side investment calls they received. The result was TOPS, short for “trade optimized portfolio system,” a ﬁltering tool that pools stockbrokers’ top picks into one vast, interactive database of sell-side tips. Although those calls are certainly informed by the intelligence coming from the banks’ research teams, Marshall Wace does not solicit direct input from research analysts — but rather from the brokers paid to make sales calls to clients. Initially, Marshall Wace used TOPS merely to track recommendations for its flagship Eureka Fund. The firm launched a stand-alone fund strategy based on the system in 2005. Since then TOPS has evolved into an increasingly powerful device for harvesting investment intelligence from markets around the world, with ideas from 5,000 indi- vidual sell-side brokers operating in 53 countries. “If you have the bandwidth to absorb information from a vast number of individuals, you quickly realize that there is an awful lot of idea generation out there — far beyond anything you’d be able to capture by conventional means,” says Wace, a brusWhen hedge fund que, intense 44-year-old managers Paul who serves as the firm’s CEO. “A vast pool of alpha Marshall and Ian Wace is just sitting out there, beyond the reach of most decided to ﬁnd a way investors.” to track and analyze The impact of TOPS on Marshall Wace has brokers’ stock picks been profound. The system, which uses algorithms six years ago, little did to analyze and rank brokers’ recommendations, they know that the has transformed the ﬁrm’s resulting product, called business model and driven its profits to new heights. TOPS, would transform The $3.67 billion Opportunistic TOPS Fund, which their business. relies on investment ideas based on market themes and stock-speciﬁc events from sell-side generalists and country specialists, has delivered an annualized return of 19.23 percent from its January 2005 inception through the end of July. The $2.84 billion Fundamental TOPS Fund, SEPTEMBER 2007 • INSTITUTIONAL INVESTOR’S ALPHA • 57

Table of Contents Feed for the Digital Edition of Alpha - September 2007

Contents Letter from the Editor Longs & Shorts Pension Corner: Keeping the Faith The Good Guys: Going Public Interview: Barry Bausano - A Delicate Balance Cover Story: Cruel, Cruel Summer Profile: Phil Cooper - Alternative Flight Plan Strategies: Marshall Wace - TOPS in Its Field Profile: Fortis Investments - Banking on Alternatives Research Center: Top Equity Trading Firms Alpha Bytes: Desktop Duel Unhedged: Commentary - The Taxman Cometh

Alpha - September 2007

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.