Quant Hedge Fund Icon AQR Cuts Back as Investors Exit

Amid a laggard spell for these sophisticated math-centric firms, Cliff Asness’ shop has had a particularly tough time.

Once hailed as the magicians of finance, quantitative hedge funds haven’t shown much dazzle lately. One of the most celebrated and a pioneer in this math-intense field, AQR Capital Management, is cutting back resources as it confronts investment outflow.

The firm, led by Cliff Asness, is axing a key bond operation, parting with five partners, and paring other activities, the Financial Times reported. The shuttered bond strategy is focused on long-term obligations; the unit started in 2014, investment site FundFire wrote.

This is only the latest downsizing for the firm in the past four years. AQR’s assets under management (AUM) topped out at $226 billion in 2018 and now sit at $137 billion, an almost 40% slide. While the precise returns for its subsidiary hedge funds are unclear, the company has acknowledged they have been disappointing.

Earlier this year, Asness told the FT that 2018 to 2020 was “actually the toughest period I’ve seen yet,” but contended that things have started to turn around. “I wouldn’t be surprised if this recovery was the biggest and the longest.” The firm couldn’t be reached for comment about the current shake-up.

Quant firms, which construct computer-driven mathematical models that aim to conjure up superior investment strategies, once were all the rage. Asness was at the forefront of category’s creation. After receiving a Ph.D. from the University of Chicago (where his thesis adviser was Nobel laureate Eugene Fama), he created a quant department at Goldman Sachs and then started AQR with partners in 1998.

Hedge funds in general have trailed the roaring bull market for some time, and quant funds are no exception. Quant hedgies are up 13.5% this year, compared with the S&P 500’s 24.7% rise, according to Hedge Fund Research—and over three years the gap is even wider, 9.3% annually for the quants, and 21.8% for the broad market index.

AQR is hardly alone in its troubles. A recent analysis of quant equity funds by Dan Taylor, CIO of Man Numeric, appearing on the Chartered Alternative Investment Analyst (CAIA) Association website, said they are “having a bit of a mid-life crisis.”

Asness’ firm has a strong tilt toward equities, although it also is active in fixed income and alternative investments. The Man Numeric report criticized quants for failing to keep up with current trends and for their dependence on historical data, which it warned could be irrelevant today. Quants, the report declared, are failing to factor in such new forces on investing as the effect of climate change, demographic shifts, wealth inequality, and the “integration of technology into our daily being.”  

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