An Executive from KKR to Take Over as Head of North America at Marshall Wace
Marshall Wace has hired Todd Builione, global head of private wealth at KKR in New York, to oversee its North American operations. Builione will replace Michael Sargent, who will retire in January after having spent close to two decades at the hedge fund firm. Builione, who already sits on Marshall Wace’s board through his strategic partnership with KKR, helped lead the private equity lender KKR in acquiring a 24.9% stake in the hedge fund firm in September 2015, which was in part used to purchase the UK-based Eminence Capital. With more than 20 years of experience in the industry, Builione is known for building KKR’s lending business, which now makes up 40% of its overall assets.
KKR’s Growing Presence in Marshall Wace
KKR purchased 24.9% stake in Marshall Wace in September 2015, an investment that Builione helped to lead, using 7.4 million of its own shares valued at $147m, as well as an undisclosed amount of money from its balance sheet. Since then, KKR has increased its stake to 39.9%. During the nearly eight-year span of the strategic partnership, Marshall Wace’s assets under management have grown almost threefold, from $22 billion to $62 billion.
Concentration of Hedge Fund Industry
Marshall Wace’s growth exemplifies how the hedge fund industry is becoming more concentrated in a handful of large and diversified firms. The rising costs of investment in technology and regulation have led to a surge in the barriers to entry for new players. Approximately three-fifths of hedge fund assets globally come from US investors, according to data provider Preqin.
Restrictions on New Investments
Most of Marshall Wace’s funds are closed or partially closed to new money. However, the management change in its North American operations will not result in a change in its distribution strategy.
Marshall Wace’s Flagship Eureka Fund
Eureka’s performance this year has not been spectacular, but it has delivered an average annual gain of 8.3% since its inception almost two decades ago, according to investors. The Tops Market Neutral fund, which analyzes buy and sell recommendations from around 1,000 outside analysts, is up 2.88% this year and has posted an average annual gain of 9.31% since its launch in November 2007.
About Marshall Wace
Founded in 1997 by Paul Marshall and Ian Wace, Marshall Wace has grown into one of the most prominent hedge funds globally and is best known for its Tops Market Neutral fund. The hedge fund firm manages over $62 billion in assets today, and approximately half of its assets are in systematic strategies using computer algorithms.
Additional Piece
Data-Driven Investment Management and the Use of Machine Learning in Trading
The rise of data-driven investment management in recent years has engendered widespread use of advanced computing techniques, such as machine learning, in trading. Investment managers now employ sophisticated algorithms, which are more accurate and less error-prone than humans, to analyze markets and generate trading signals. Analyzing financial data using machine learning helps investment managers discover underlying patterns and trends that may inform their trades. Furthermore, using machine learning in trading has enabled hedge funds and other investment firms to find value in hidden or under-appreciated corners of the market.
Machine learning’s usage has come with some drawbacks, however. One of the most significant problems is that finding patterns in data is only meaningful if the observed patterns are predictive of the future state of markets. Most of the apparent longitudinal relationships observed in financial data are spurious, making it essential to exercise caution when interpreting signals provided by machine learning. Although machine learning can provide valuable predictive insights, the calculated output is not always reliable.
But perhaps the greatest challenge posed by machine learning is one of interpretation. Machine learning models are often referred to as black boxes since their inner workings can not be determined easily. While this might be acceptable for a purely automated system that’s dealing only with supporting decision-making, regulatory or other requirements can demand accountability for certain actions taken by investment firms using machine learning. Thus, there is a delicate balance between an investment firm’s ability to generate legitimate trades from these models without insight into precisely how they work, and providing accountability and transparency to various stakeholders.
Despite these concerns, machine learning continues to play a central role in the analysis of markets, and as computers and data continue their exponential growth, it will undoubtedly play an even more critical role. But while the application of machine learning in investment firms continues to grow, due caution must be taken to ensure a viable and effective framework for its utilization.
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Marshall Wace, the hedge fund, has tapped a senior executive from its private equity lender KKR to run its US business.
Todd Builione, partner and global head of private wealth at KKR in New York, will join Marshall Wace as head of North America in September, the two companies said on Monday. He will replace Michael Sargent, who will retire in January after nearly two decades at the company.
Founded in 1997 by Paul Marshall and Ian Wace, Marshal Wace has become one of the world’s leading hedge funds. He is best known for his Tops Market Neutral fund, which analyzes buy and sell recommendations from around 1,000 outside analysts, and his flagship Eureka fund, managed by Marshall. About half of his assets are in systematic strategies using computer algorithms.
kkr extension bought a 24.9% stake in Marshall Wace in September 2015, an investment Builione helped lead. It paid for the fee using 7.4 million of its own shares, valued at $147 million, and an undisclosed amount of money from its balance sheet. KKR has since increased its stake to 39.9%. During this roughly eight-year period, Marshall Wace’s assets under management nearly tripled, from $22 billion to $62 billion.
The growth of bands like Marshall Wace illustrates how the hedge fund industry it is becoming increasingly concentrated in a handful of large, diversified firms. The rising costs of investment in technology and regulation have raised the barriers to entry for new players.
Builione already sits on Marshall Wace’s board through his strategic partnership with KKR. Before joining the alternatives giant a decade ago, he ran the hedge fund business of Highbridge Capital Management and worked at Goldman Sachs. In a decade at KKR, Builione was instrumental in building the group’s lending business, which now comprises 40% of its overall assets.
“We look forward to working with [Todd] in his new role and deepening the strategic partnership between our companies,” said Scott Nuttall, co-CEO of KKR.
The management change in Marshall Wace’s North American operations will not result in a change in its distribution strategy. Most of its clients are institutional investors and the firm has no plans to go after the retail market, said a person familiar with the situation.
Most of its funds are closed or partially closed to new money. About three-fifths of hedge fund assets globally come from US investors, according to data provider Preqin.
Eureka’s performance is flat this year, but it has delivered average annual gains of 8.3% since it launched nearly two decades ago, according to investors. The Tops Market Neutral fund is up 2.88% this year and has posted an average annual gain of 9.31% since its launch in November 2007.
KKR manages over $500 billion in corporate private equity investments and strategies focused on loans, infrastructure and real estate.
https://www.ft.com/content/810ce0b1-c583-49c3-a1b3-630a2cf4ba27
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