There’s a split internally at $65 billion Marshall Wace.
The 27-year-old London-based hedge fund, founded by Paul Marshall and Ian Wace, has prided itself on its collaborative culture. Marshall said last year that his firm is “characterized by long-employment duration and a highly collegiate environment.”
But long-term current and former employees told Business Insider the manager has turned into the type of every-man-for-themselves firm Marshall Wace has lambasted in the past, in part because the implementation of a new employee-compensation fee last summer to help retain and recruit talent has brought on teams from rival funds.
One longtime investor in the fund who is close to several senior employees says the current culture is “half-imported” from Citadel, Millennium, and Balysasny.
“The firm took on mercenaries, and now they are acting like mercenaries. It’s how it works,” said one former employee.
Marshall Wace, which started with $50 million, some of which came from George Soros, focuses on long-short equity and quant strategies within its flagship multi-strategy fund and was a pioneer in the alpha capture space. It launched its stand-alone Trade Optimized Portfolio System fund more than 20 years ago. The firm has more than 700 employees across its London headquarters and four other locations globally: New York, Singapore, Shanghai, and Hong Kong.
The firm declined to comment for this story.
Multi-strategy might
The culture shift at Marshall Wace is just the latest ripple effect to come from the vast expansion of power, assets, and clout of the largest multi-strategy hedge funds. These firms have driven up the cost of talent with a relentless bidding war for the dwindling numbers of capable portfolio managers, limited the number of new launches by wooing would-be founders to join with too-good-to-pass-up offers, and brought a new level of institutionalization to a still-young industry.
Pass-through fees have been the most critical tool for these firms in their expansion. Thanks to the ability to “pass through” all fund expenses, including employee compensation, to the end investor, the biggest firms can offer the most money, especially guaranteed compensation.
These fees eat into overall returns, frustrating end investors. A BNP survey found that LPs received 41 cents on every dollar earned by a multi-manager due to skyrocketing costs.
But retaining and recruiting talent is the number one priority for these funds, making business development pros in charge of building these teams a hot commodity and changing how allocators evaluate the sprawling firms.
It’s pushed managers, old and new, around the world to charge investors more to keep up. For Marshall Wace, that looks like a charge that can be up to 0.75% of the $22.4 billion Eureka fund’s value — more than $150 million — on top of the set management fees and variable performance fees the firm already charges. The difference between Marshall Wace’s new fee and those of its multi-strategy rivals, though, is the London-based firm caps its charge.
Old guard vs. new
The best example of how Marshall Wace has moved from its original culture, particularly within its flagship fund, Eureka, is the lack of transparency between investing teams.
Two longtime current and three former employees told Business Insider that teams used to be able to see each other’s holdings, and the goal wasn’t “to beat the guy next to you, but to generate the best overall return in the fund.” One former employee said they had a weekly conversation with another team based on something interesting they saw in their peer’s portfolio that eventually helped them trade their own book.
With the recruiting of talent from firms like Citadel and Millennium, where portfolio managers are accustomed to a more typical “eat-what-you-kill” style and internal competition is high, this internal tech function was shut off, several people said. A person close to the firm said that certain people still have access to aggregated positions, but the restriction helps Marshall Wace manage “complexity and confidentiality” as the manager continues to grow.
“You’ve got the old guard operating like they always have and the new hires running their teams like they did at Millennium, Citadel, etc. It doesn’t mesh,” another former employee noted.
Recent hires from these multi-managers include former Citadel credit trader Dan Schatz, one-time Millennium senior PM Ruchit Puri, Balyasny investor Jaime Brandwood, and Sculptor partner Derek Rosenthal, among others. The Eureka fund was up 4.6% last year, trailing the S&P 500 as well as its largest rivals in the industry, but has rebounded this year with a 7.4% gain through April.
The firm has been aggressive in building out its bench with this type of talent despite Marshall’s comments last year at an investment conference in Hong Kong that these firms operate “a kind of battery-hen farming merry-go-round.”
The constant poaching with bigger and bigger pay packages, he said, is “not the right way to build great businesses or even to build a great industry for our clients.”
