Hedge fund Marshall Wace seeks venture capital deals

Marshall Wace, one of the world’s biggest hedge fund firms, is expanding into late-stage venture capital, the latest sign that managers usually focused on trading stock markets are seeking new sources of returns in private markets.

London-based Marshall Wace, which manages about $52bn in assets, is raising as much as $400m for a fund that will invest in privately owned healthcare companies, according to people familiar with its plans. The strategy is to buy them before flotation and then hold on to them after they list.

The launch highlights how some hedge fund managers see a gap in the funding market between early-stage venture capital and flotation on stock markets, where valuations have soared in recent years as investors have piled into companies with attractive long-term growth prospects. 

Such managers believe that few investors are taking advantage of holding companies as they grow in private hands and then holding on when they are listed. Private equity funds will typically sell when a company has an initial public offering, whereas mutual funds and hedge funds tend to get involved at or after that point.

Pre-IPO companies often want big-name investors on their roster before moving to public markets, and staying invested for longer will make these funds more attractive for companies to have as investors, fund managers believe.

Daniel Loeb’s Third Point, best known for activist battles at public companies, has been raising up to $300m for a venture capital fund, the Financial Times reported at the end of last year.

Marshall Wace usually trades stocks and this is the first time it has launched a vehicle for outside investors that will buy into private companies. The firm might launch such funds in the future focusing on other fast-growing sectors, the people familiar with its plans said. It sees an opportunity in less efficient valuations in the private market.

The Marshall Wace and Third Point launches underscore how the lines between the hedge fund and private equity industries are becoming increasingly blurred, as managers trading highly priced public markets look for new sources of returns.

The new fund, which will lock up investors’ cash for a number of years, will aim to invest in companies that are between about six and 24 months away from going public, in areas such as biotechnology, medical technology and life sciences. It is likely to invest in companies in the US, Europe and Asia.

The healthcare sector has been in investors’ focus over the past year as drugs companies have raced to develop treatments and vaccines to combat the Covid-19 pandemic. Marshall Wace already holds about $10bn of investments in listed healthcare assets, including the effects of leverage.

Marshall Wace was co-founded by Sir Paul Marshall and Ian Wace in 1997 and is one of the London hedge fund industry’s dominant companies.

Its flagship Eureka fund and its Tops (Market Neutral) fund, which analyses buy and sell recommendations from about 1,000 external analysts at banks and research houses to determine its bets, both gained more than 14 per cent last year, according to investors. In January Eureka lost 1.5 per cent, and Tops (Market Neutral) gained 3.8 per cent.

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