In some ways, Cliff Asness is a classic hedge fund manager. He’s got the money, works in Connecticut and reveals the mechanics and performance of his flagship absolute return fund only to investors. But in other ways, the boss of AQR Capital Management is an agitator for change. His latest campaign – in a career claiming many intellectual victories to date – is to demystify the sources of return within hedge funds. This is the type of battle that has defined AQR’s culture, its investment ideas and competitiveness. But there’s a deeper story here. SIMON MUMME reports. Cliff Asness picks fights. He can’t help it. His targets are not the everymen walking city streets but the proponents of flawed investment ideas and strategies that can economically hurt people. It’s an “odd vigilantism,” he says, “a superhero complex in a very geeky, non-superhero field”. Funds managers who get something wrong are innocent enough, but if they publicly espouse what Asness regards as incorrect investment thinking to promote their products, he will weigh in. “Someone with intellectual arrogance who is selling a product based on reasoning that’s just dead wrong – it always drives me a little crazy,” he says. This explains his televised stoush with Rob Arnott, chairman of Research Affiliates, who launched fundamental indexing into the investment world as a new style of investing. Asness thinks it is a “great product”, but is nothing new: it’s a valuebiased way of indexing.
Arnott’s strategy does not compete with the quantitative absolute return and long-only equity products run by AQR Capital Management, which he co-founded in 1998, but the intellectual fanfare he used to launch it was still irritating. “Sometimes I’m just crazy enough to jump into a fight for no reason except that I think – and I can never prove it, it’s just my opinion – that I’m right,” Asness says, then pauses. “Who am I kidding: I know I’m right.” It has taken a few years to make peace with Arnott, whom Asness respects and collaborated with on research before this round of intellectual sparring. And it is just one skirmish the AQR principal has made – through academic papers, investment presentations and opinion articles – in the years since AQR was founded in 1998, when he was forced to defend the manager’s value and momentum models as technology stocks boomed irrationally.
