It seems to be the biggest hedge fund float we have seen to date — a €1bn offer of stock in MW Tops, a new investment company to be listed on Euronext,that will invest in Marshall Wace European Tops (trade optimised portfolio system) strategies.
The move follows the recent sale of a multi-strategy fund on Euronext by former Goldman Sachs bankers Boussard & Gavaudan, which raised €410m.
Marshall Wace, well established now as one of Britain’s leading long/short hedge funds, uses a “best ideas” box that crunches every available piece of investment banking research to come up with optimum investment recommendations. If the hedge fund follows particular ’sell side’ advice, the investment bank concerned picks up commission according to a ranking system.
It’s an approach that has produced some consistently good returns — typically more than 20 per cent, before management fees, over the past five years.
It has also produced some mutterings — specifically that the approach encourages sell side analysts to offer Marshall Wace their best ideas on a preferential basis, so as to secure commission. However, in late September, the Financial Services Authority cleared Marshall Wace and other operators of so-called Alpha capture systems of any wrongdoing, saying the firms had a series of checks in place to prevent market abuse.
Indeed, an FSA study found that because of the clear audit trails produced by these systems, the “risk of (explicit abuse) might be lower than through traditional communication methods.” What the watchdog meant is that it’s easier to break the law by passing on a tip in a bar, say, than processing research in a computer.
The new fund now being floated will invest in two existing strategies managed by Marshall Wace — Opportunistic Tops, which launched in 2002, and Fundamental Tops, launched in 2003. The target returns are 12 per cent to 16 per cent, with volatility of 5 per cent to 7 per cent.
MW is also promising “multi-discount management features” to deal with any situation where a discount opens up between the fund’s share price and the net asset value per share.
Deutsche Bank, Merrill Lynch and UBS have been appointed joint global co-ordinators and joint bookrunners. The offer is expected to be completed by the year-end.
