The Billionaire Odd Couple Whose Hedge Fund Is Killing It
Paul Marshall and Ian Wace have almost nothing in common—except a $70 billion fund with a top-secret algorithm. Says Wace: ‘I don’t think I have really ever agreed with anything that Paul has ever said.’
LONDON—Investment duo Paul Marshall and Ian Wace outran competitors during the recent market turmoil with an unconventional trading strategy: a top-secret algorithm that analyzes tips from rival hedge funds and investment banks.
It’s Wall Street meets fantasy football. Stock salespeople and others across Wall Street submit trading recommendations to the duo’s hedge-fund firm, Marshall Wace. The firm analyzes the ideas and rewards firms of top contributors with millions of dollars of commissions each year.
The tips are run through algorithms that evaluate them alongside a host of other factors that the firm sources and scrapes each day. That includes information like social-media signals, fund flows and satellite imagery of everything from parking lots to oil tankers. The best ideas that arise from that data crunching are then put into action into many of the firm’s portfolios.
Others have tried and failed for years to fully match the strategy, which has propelled Marshall Wace into the ranks of the world’s largest hedge funds. It manages more than $70 billion and bested the performance of leviathans including Ken Griffin’s Citadel and Steve Cohen’s Point72 last year, delivering a 22.7% return in the firm’s hallmark fund that uses the algorithms, all with a staff a fraction of the size.
Marshall Wace has carried its winning streak through President Trump’s tariff-induced volatility, with that same fund up 7.1% for the year through April, even as broader markets swung violently. In comparison, a broad hedge-fund index tracked by research firm PivotalPath was up 0.1% over the same period, while the S&P 500 was down 5.3%.
The strategy is born of an unlikely partnership between Marshall and Wace—two billionaire co-founders who have little in common.
“I don’t think I have really ever agreed with anything that Paul has ever said,” Wace said in a rare interview at the firm’s headquarters in London’s posh Chelsea neighborhood. He contends he has never been to dinner with his business partner of nearly 30 years and has been to his house just once—to drop him off.
Even on that point the duo can’t seem to agree. Marshall insisted Wace must have been joking. “Of course we’ve been to each other’s houses.” But, he added, “we’re very, very different.… That’s the kernel of truth in what Ian says.”
Oxford-educated Marshall serves as chief investment officer, overseeing the fundamental stockpicking portfolios that gave the firm its roots. He is described by colleagues as calm and intellectual—a counterbalance to Wace’s intensity.
Outside of work, however, Marshall is a burgeoning power broker, bankrolling a clutch of conservative media properties in the U.K. He snapped up the Spectator magazine—often called the “Tory bible”—in September and founded UnHerd, a publication for people who “dare to think for themselves” in 2017. He also co-owns the rowdy GB News channel, which features presenters like Nigel Farage, the populist politician whose anti-immigration Reform UK party is on the rise.
Marshall disputes he himself is conservative, maintaining he is a classical liberal and a supporter of limited government, free markets and free speech. He’s increasingly taken those views public, calling last week for Britain’s BBC to be broken up or sold. (It “squats like a giant toad in the middle of the U.K. media landscape,” he said in a speech at Oxford). He also co-founded the Alliance for Responsible Citizenship and starred on stage this year at its London conference, often called the anti-woke version of Davos.
Last year, a U.K. advocacy group revealed he had engaged with inflammatory posts on X, including liking posts that called for “mass expulsions” of immigrants and predicted “civil war” with “fake refugee invaders” in Europe. Outcry followed, with demands that Marshall step down as chair of Ark Schools, a trust that operates schools across England. Marshall founded Ark, the children’s charity that funds Ark Schools, with other hedge-fund managers, including Wace. Marshall has since apologized and deleted the posts.
“To see your partner hurt is sad,” Wace said, of the social-media incident. “But we saw through it.”
Wace, the firm’s chief executive, is less outwardly political. When Marshall handed over £100,000 to a campaign in 2016 supporting Britain’s exit from the European Union, Wace donated £100,000 supporting the campaign to stay.
“I realized that it would be absolutely ridiculous to be considered a Brexit-loving company, so to neutralize it, I just did the opposite,” Wace said.
Colleagues describe Wace as an intense, energetic perfectionist—someone who, after serving in the army, climbed the ranks of British finance without a college degree. One former colleague recalls Wace coming to the office with his body blistered and one hand bandaged to the elbow—injuries sustained trying to light a pizza oven while on vacation. Roughly a week later, Wace was back at his desk, working as if nothing was amiss.
“They are totally different personalities, which is usually a recipe for disaster,” said Caron Bastianpillai, a portfolio manager at NS Partners, which invested early with Marshall Wace. “This is one of the rare instances where it’s been a huge success.”
Hedge funds tend to be run by a singular head who makes the final decisions. Think George Soros or John Paulson. Pairings are often associated with fallings out, including most recently at quant powerhouse Two Sigma, where clashes between the co-founders over the firm’s direction forced both men to step down as co-chief executives last year.
Marshall and Wace, now in their 60s, first met in 1985, while building their careers at British investment bank S.G. Warburg. Wace was the first broker inside the firm to call and introduce himself to Marshall, who was settling in as a fund manager.
The duo got to know each other while traveling frequently to France on business. Wace later faced a personal tragedy when his wife and two young children died in a car crash in 1994. Wace was driving in a vehicle ahead of them as they returned home from a vacation in the countryside.
A couple of years later, Wace approached Marshall with an idea: a hedge fund that blended Marshall’s investing expertise with Wace’s trading know-how. After scraping together $50 million, including from Soros, in 1997 they launched their first fund, called Eureka, a long-short equity fund that bet on and against stocks.
They didn’t initially agree on the idea that eventually became their winning formula. The firm, like most hedge funds, regularly received phone calls from Wall Street brokers, pitching Marshall Wace on stock ideas in hopes of gaining its trading business. Wace thought it was worth formally tracking and analyzing the ideas to see if they were fruitful. Marshall was skeptical.
Most people “on the buy-side like me were very arrogant about the sell-side,” Marshall said, referring to the financial world’s divide between investors and brokers. “Ian didn’t have that view at all.”
Wace tasked a summer intern, Anthony Clake, in the early 2000s to find a way to measure the ideas. The resulting spreadsheet evolved into what is known as TOPS, for Trade Optimized Portfolio System.
Today, more than 1,000 outside contributors, including the likes of Goldman Sachs and JPMorgan Chase, submit trading ideas—alongside detailed explanations for them—into model portfolios, the performances of which are continuously tracked and individually displayed to participants. Some rival hedge funds, mostly smaller firms, also submit ideas, some of them too impractical to trade on their own. Top performing firms are rewarded quarterly with commissions, whether Marshall Wace trades on the ideas or not.
The firm can pay out hundreds of millions of dollars in a good year in total, according to a person familiar with the matter. TOPS has received over four million ideas since launch.
TOPS isn’t just analyzing the ideas that come in, however. It also tracks behavioral biases of participants themselves. It can examine, for instance, what time of day participants submit their best ideas, or whether they dump their winners too soon. Regular feedback detailing performance keeps participants hooked. Low performers can be cut from the program.
“It would be quite wrong to think of it as a simple translation of Joe Schmo’s idea into a portfolio,” said Marshall. “Joe Schmo may have an idea, and that might be a small part of a signal of whether or not that stock is interesting.” Wace says the firm processes over 30 petabytes of data each day, equivalent to 400 billion emails, to come up with the best trading ideas.
In its earliest days, the strategy faced skepticism. Some in the industry wondered whether the system would work in practice, or whether it was even legal.
Regulators also had questions, including if systems like TOPS utilized early or privileged access to inside information. British regulators probed the matter, finding in 2006 that the “clear audit trails” that came from participants’ electronic submissions suggested the risk of passing on inside information “might be lower than through traditional communication methods.” Still, they emphasized that firms need to have strong compliance practices in place.
TOPS now guides over $40 billion of assets, more than half the firm’s money. Investors and TOPS contributors say the system’s scale and long history has helped Marshall Wace remain the front-runner, even as the strategy has become more popular among hedge funds. Other firms—such as Two Sigma, Citadel and Man Group—have similar systems.
Marshall Wace has some 750 employees, compared with more than 3,000 employees at Citadel and nearly 1,800 at Man Group. Clake, the intern who developed TOPS, is now a partner.
Wace oversaw the design of the firm’s London office, filling it with modern chandeliers, reclaimed-wood ceilings and giant display cabinets filled with employee family photos. It’s about “making our people feel very cozy,” Wace said. “Then we [can] drive them incredibly hard.”
He once challenged a group of prospective hires to visit the most countries in Europe, using as many forms of transportation and as cheaply as possible—within 24 hours.
“I wanted to see to what extent someone could think pretty creatively. I wanted to see, if you exhausted them, what would happen,” Wace said. Among the notable results? One made it to the far side of Poland “on something like 30 different forms of transport,” Wace recalled. Another stayed local, traversing London’s many embassies.
That candidate is at the firm now. “He’s actually very clever,” Wace said. But, as he saw it, “it was a bit too cute.”