Sir Paul Marshall: Why Markets Are Getting More Competitive, The Logic of Shorting, and Building TOPS

**Paul Marshall** (0:00)
My worst investment ever was probably the first Iraq war. It goes back a long time. I remember because the date of the invasion was August the 2nd, 1990
And then seven months later, the Americans finally struck on Iraq. By that time, I had built a very significant long position in oil services, oil stocks and so on. And I had an absolute nightmare, absolute nightmare performance. My worst performance yet ever by a long way. Could have lost my job, really.

**Nicolai Tangen** (0:48)
Hi everybody. I'm Nicolai Tangen, the CEO of the Norwegian Sovereign Wealth Fund. And today, my guest is one of the most successful investors of our generation. Sir Paul Marshall started Marshall Wace in 1997, and today is one of the largest and most successful hedge funds in the world.
Marshall Wace combines man and machine, and they built the world's first AlphaCapture application, which is like a system that collects trade ideas from thousands of brokers, tracks who gets it right, and puts money behind the best. Now, Paul has also written down what he knows about investing in his book Ten and a Half Lessons from Experience. He's also huge on philanthropy. So let's explore these and other things today. Paul, warm welcome.

**Paul Marshall** (1:31)
Thank you, Nicolai. Great to see you again. It's been far too long. And I should say, by, I mean, when you say I started Marshall Wace, Ian Wace and I started Marshall Wace, very much a partnership.
And it's remained a partnership and a broadening partnership all through its life.

**Nicolai Tangen** (1:46)
When you started Marshall Wace, who decided that Marshall was going to be before Wace?

**Paul Marshall** (1:52)
Alphabetical.

**Nicolai Tangen** (1:55)
Now, today you run around 90 billion dollars. What is it that Marshall Wace is best in the world at?

**Paul Marshall** (2:04)
Well, it's very presumptuous to say you're best in the world at anything. But I guess what we could claim, I would probably claim two things.
We're probably best in the world at AlphaCapture because we created AlphaCapture. That was our unique contribution. Secondly, I would say we may be best of the world at combining discretionary with systematic investing.
Over the years, our original route in discretionary fundamental investing has been combined with systematic, and they actually turn out to be highly synergistic. So our discretionary side has benefited hugely from the systematic side. The systematic side has benefited hugely from sitting in an environment where people basically are very focused on fundamental and on the market. So it's never ever been remotely detached from market. In fact, it's a very market-orientated way of doing systematic.

**Nicolai Tangen** (3:07)
And we'll go back to that. Why have you been successful now, roughly 30 years, when so many other funds have kind of fallen by the wayside? What do you think is the key to that?

**Paul Marshall** (3:18)
I think the single most important thing is continuous innovation. So a lot of people in our industry, perfectly legitimately, started as a very smart guy looking at balance sheets with a Bloomberg terminal. And that's all you needed. And some very smart, not very many, but some of you, maybe, some very smart guys have continued to flourish primarily relying just on being very smart.
But we have gone well beyond that and effectively embraced every type of innovation to the point where we're almost now a tech firm rather than an investment management firm. So it's changed out of all recognition because we innovate every day, basically.

**Nicolai Tangen** (4:10)
Because you do say in your book that most fund management careers end in failure.

**Paul Marshall** (4:15)
Yes. Well, that was a different point really. And that was kind of reflected my, the observed pattern of my previous firm, but also a lot of firm management firms, I think, get into the problem of hubris, where they grow and grow, they don't have discipline around capital, and they don't have discipline around, or a sense of their own mortality. And so a lot of firms get too hubristic, too big, and size matters, which is another thing in the book.
So they get too big in the market. The positions own them rather than them owning the positions. And when they're wrong, that can drag their business down and destroy their return pens.

**Nicolai Tangen** (5:03)
How are you reminded daily about your mortality? Do you have somebody telling you?

**Paul Marshall** (5:08)
I don't have anybody at my shoulder. But you basically, as you know, Nicolai, if you look at the success ratios of managers, a really good manager might have a 53, 54% success ratio. So 46% of the time, they're wrong.