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17 Jan 2007

Hedge Fund Defends Winning Strategy

Multimillionaire hedge fund co-founder, Paul Marshall, defended his hedge fund Marshal Wace and its controversial strategy, which relies on investment ideas supplied by City stockbrokers, he said in an interview with the Times.

Marshal doesn't believe that his system, called Tops, would encourage market abuse. The hedge fund, which manages only about $11 bn but it is thought to trade a greater volume of European equities than any other fund, 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.

Mr Marshall said: “Our audit trail and compliance procedures act as a very strong deterrent to anyone who even considers entering unauthorised information into the Tops system.” Tops was the attraction of MW Tops, a listed hedge fund that Marshall Wace floated last month in Amsterdam.

The Tops methodology 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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