The so-called ‘alpha capture networks,” electronic systems that gauge how well brokers investment recommendations perform, are causing banks to give hedge fund preferential treatment, or so claim traditional fund managers. Financial News reports that since the introduction of systems such as Tops by hedge fund Marshall Wace, the banking industry has been focusing on hedge funds at the expense of traditional managers, and brokers are starting to behave “like rival fund managers instead of advisers,” Martin Taylor of Thames River Capital told FN. Banks may prefer hedge funds, suggests FN, because they engage in more trading activity than their traditional peers and are willing to pay the price for the privilege. The revelation comes only weeks after the U.K.’s Financial Services Authority gave its blessing to the alpha capture systems, and while the FSA has no guidelines for fair sharing of trading tips, it does require all clients to be treated fairly, reports FN. The new Marshall Wace system appears to be turning relationships Tops-y-turvy. Taylor said in an FN interview that the alpha capture networks have ruined decade-long relationships, and has made brokers system-centric. “The performance of their ideas in Tops has become all important to them,” he said. “So they are giving it their best ideas first, trying to manipulate me into boosting their performance by following the same ideas.” Taylor adds that the brokers are “trying to induce me to disclose my best ideas so they can feed them into Tops.”
