Marshall Wace, one of Europe’s largest hedge funds, will on Monday unveil plans to launch a publicly listed exchange-traded fund to track its flagship Tops fund strategy in an effort to rebuild assets after huge redemptions in 2009.
The move marks a rekindling of a trend popular among top-tier hedge funds at the height of the boom to list versions of their restricted, proprietary strategies on stock exchanges.
The Marshall Wace vehicle, expected to raise $500m (£307m), will be structured as an ETF, the first such structure of its kind, and unlike a closed-ended listing will be able to grow in size according to investor demand.
The fund, to be named Marshall Wace Tops Global Alpha, will be listed on both the London and Frankfurt stock exchanges and will track an index designed to mirror the holdings of the six existing Marshall Wace Tops funds, proprietary hedge fund strategies currently only available to institutions and wealthy individuals.
For Marshall Wace, offering its strategy via an ETF is a potentially attractive way to scale its operations swiftly after suffering, like many of its peers, from a wave of client redemptions after the collapse of Lehman Brothers.
At its peak in early 2008, Marshall Wace managed $15.8bn, but it has seen that amount shrink dramatically, to about $5.1bn currently.
Although the cost of running the Marshall Wace ETF itself for investors will remain small at 0.25 per cent annually, crucially, the underlying structure it tracks will still carry a 1.5 per cent annual charge and 20 per cent performance fee as is germane to hedge fund strategies.
Marshall Wace expects the structure to return 8-10 per cent annually to investors, with very low volatility, potentially making it hugely attractive.
The Tops (trade optimised portfolio system) strategy was conceived in 2001 by the then 21-year-old Anthony Clake and Ian Wace, the co-founder of the firm and has courted praise and criticism in equal measure.
The system works by taking buy and sell recommendations from hundreds of brokers on a daily basis. The recommendations are then processed by a computer algorithm to sort out good ideas from bad ones. Trades – and with them healthy commissions – are then routed via the brokers that submitted the best tips.
Critics have said the system leads to preferential advice from brokerages and potential market abuses, but the UK’s market regulator, the Financial Services Authority, concluded the opposite in 2006.
In 2009, the six Tops funds returned between 6 per cent and 26 per cent according to a person familiar with the situation. On average, the funds have returned 10.9 per cent each year.