Paul Marshall of Marshall Wace claims that the emergence of new platforms that designate talent as “Cristiano Ronaldo-like” is the reason multi-manager hedge funds are giving portfolio managers a “foolish” amount of money.
Speaking on Wednesday at an investment conference in Hong Kong, Sir Paul Marshall, co-founder of Marshall Wace, the largest hedge fund in Europe, claimed that the sector had changed due to the dominance of multi-manager platforms, who were “paying an incredible amount of money to attract people.” “Everyone wants Cristiano Ronaldo on their team, but there aren’t much Cristiano Ronaldo,” he remarked, alluding to the fact that he and Ian Wace co-founded the band in London in 1997.
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“Europe’s Largest Hedge Fund Founder Raises Concerns Over Excessive Pay in the Industry”
Paul Marshall did not mention any particular companies. Marshall is trying to buy the Telegraph Group of the UK through his digital media company Unhedged. His remarks, however, seem to indicate that platforms like as Point72 Asset Management, Citadel, and Millennium Management have sparked a competitive bidding war for personnel.
Comparable in scale to Citadel and Millennium, Marshall Wace is the largest hedge fund in Europe with assets of $64 billion.Multi-manager platforms have developed a different fee structure for traditional hedge funds. These platforms usually distribute cash to experts in groups of several hundred people.
In this strategy, managers pass through all costs to their final investors, including office rent, data and technology, wages, bonuses, and even entertainment for clients. The concept is for managers to charge a premium 20–30 percent performance fee after making significant investments in areas where expenses are lower than the resultant performance, such as people and technology.
The “pass-through” approach, which aims to attract and retain top performers, provides sign-on incentives in the hundreds of millions or even millions of dollars, rewarding individual portfolio managers with practices and payments that may generate returns of 20–30 percent.
In terms of money, a few multi-manager agreements and payouts have surpassed Ronaldo’s $200 million annual contract with the Saudi Arabian football side Al Nassr.
“Marshall Wace’s Response: Navigating the Talent War and Innovative Incentives in the Hedge Fund Industry”
Marshall’s took a stance then, saying that “multi-manager platforms are driving a fierce bidding war” for talent. This competition for talent has forced firms like Marshall’s to offer incentives like the 0.75 percent “carry entitlement” added to the fund’s price this year, which will be used to reward high performers.
According to him, the platform hedge fund model has made it possible for certain companies to participate in a “very foolish sign-on bonus war,” even in the event that they are fired after two or three years and relocate. Within the business, this procedure is referred to as “golden handcuffs.”
Certain platform hedge funds, according to Marshall, operate like “a merry-go-round of battery hens,” and their high compensation model is “not the way to build a great business or, indeed, to build a great industry.”
During the same panel discussion, Cris Grade, co-founder of the Hong Kong-based investment group PGI, revealed that his company’s hedge fund section offered an eight-figure sign-on incentive to some workers so they would leave for competitors, calling this practice “complete madness.” He chuckled and continued,
This tendency, according to Grade, is “a temporary phase, a very bad phase.” “I think it’s good for some people. . . but it’s not good for the client, and it’s not good for the industry.”During the same session, Albert Goh, one of the four chief investment officers of the Hong Kong Monetary Authority, a sovereign wealth fund and central bank, expressed thanks for the remarks made, adding, “We don’t like to pay fees.” HKMA is a significant worldwide investor, holding around HK$4 trillion ($511 billion) in exchange funds.