The Qatar Investment Authority is to sell down a third of its stake in the London Stock Exchange Group ahead of the bourse’s $1.6 billion rights issue to help purchase Frank Russell, the US index compiler.

The sovereign wealth fund has instructed Bank of America Merrill Lynch and Citigroup to sell a near 5 per cent stake in an accelerated bookbuild, according to two people familiar with the situation. The QIA is expected to retain a 10 per cent stake in the LSE, with the deal announced on Thursday morning.

Its sale comes only months before the LSE asks shareholders to back a rights issue in September that will fund a $2.7 billion purchase of Frank Russell, whose benchmark equity indices are widely used by US fund managers.

The $2.7 billion move will launch Europe’s oldest independent bourse firmly into the world’s biggest fund management market and the largest single market for exchange traded funds. By combining Russell with the LSE’s FTSE International brand, the UK exchange will gain the firepower to compete with market leaders MSCI and S&P Dow Jones.

The sale was “routine portfolio management”, the QIA said in a statement. The LSE declined to comment.

It represents a further significant sale of QIA’s holding since it bought a 20 per cent stake in the LSE in 2007. The complex deal, also involving Borse Dubai, was part of a set of manoeuvres that kept the LSE independent and out of the hands of Nasdaq OMX, the US exchange that was stalking its London rival. Borse Dubai remains the largest single shareholder in the LSE, owning a fifth of the shares.

Although the LSE has regularly paid dividends, the value of the LSE shares have doubled to a record £20 in the past 18 months as investors have warmed to its purchases of stakes in transatlantic clearing house LCH.Clearnet and the 50 per cent it did not own in FTSE International, an index compiler, from Pearson, owner of the Financial Times.

The LSE has rapidly expanded its indices business in recent years as demand for specialist market data has risen, making index compilers highly sought after assets.

— Financial Times