AQR Riding High After Tough Run

Bloomberg

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00:00AQR Capital Management is riding high again following a few rocky years.

00:05Sources tell Bloomberg the hedge fund manager's assets have grown by a record $65 billion this year,

00:11reaching $179 billion and approaching prior highs.

00:15Joining us now is Bloomberg Cross Asset Reporter Donita Tsikova, who braved the cold and went to Greenwich.

00:23That's where their headquarters are in Greenwich?

00:24Greenwich, Connecticut. Yes, that's where they're based.

00:26The company had a pretty rough few years.

00:30Some dubbed those years, not only for AQR, for Quants More Journey, the Quant Winter.

00:34It was around 2018, 2020.

00:36You know, value wasn't necessarily working.

00:38And AQR at that time had like a record amount of assets.

00:42They had about $226 billion.

00:44They halved that assets pretty fast in just two years.

00:48And now something pretty impressive is happening.

00:51They are increasing their assets at record pace, nearly $70 billion this year.

00:56A lot of it is performance.

00:58A bigger part, of course, it's from inflows.

01:00But they have new things that are apart from that, you know, value, momentum, what everyone knows them.

01:06Factors to watch.

01:07Yeah, factors to watch.

01:08But there are other things.

01:09They do tax-aware.

01:10They even have a multi-strategy, which is kind of the space you would think of Millennium and other hedge funds like that.

01:15But they have a multi-strategy.

01:16They have new approaches to equities.

01:18They have all those alternative trend following in very, very niche markets.

01:22So the company has changed a lot.

01:24And this year, this is paying off.

01:25Yeah, I mean, when I saw the story on tax-aware strategies last year, I thought, how do I get money in there?

01:30And I'm sure everyone else was thinking the same thing.

01:32Plus, they've had really impressive returns, as you point out right at the top of your story, right?

01:3615% to 20% annual average returns.

01:40For the last five years, yeah.

01:41It's really impressive.

01:42The tax-aware is really hot right now.

01:45We see other hedge funds.

01:46We saw Two Sigma recently launching those.

01:48Of course, there are only a few names playing in that space right now, which makes sense that AQR is growing very fast.

01:54Actually, for tax-aware, they tripled their assets in nine months.

01:57So it's $45 billion now.

01:58It's growing really fast.

02:00And we looked at one mutual fund that does it.

02:02And it's a really small distribution.

02:04And the gains are pretty big, which is the problem with tax-aware.

02:06A lot of people are going for it.

02:07And then you get really good after-tax returns.

02:09But you're losing some of that alpha.

02:12So there is that trade-off.

02:13But yeah, their funds are doing well.

02:14Even trend following, which is actually doing as an index not too well.

02:18Their trend following is doing pretty well.

02:19But how much detail did they give you when you went out there?

02:23Because we have Cliff Asnes on the program sometimes, and it's fantastic.

02:28He's a pretty open book.

02:30But the twist in your story is they're making more money but telling us less about how they do it, right?

02:36They are a lot more secretive.

02:38And they do.

02:38They come on TV.

02:39They talk to us.

02:40But in terms of what they actually do, they say a lot less.

02:44They're talking more about the market, AI, and what's happening.

02:47But in terms of academic papers and things where they actually publish more about what their approaches are and what they actually do,

02:54they are publishing half of the page they used before.

02:57And there are a lot of topics that they don't really want to talk about.

03:00I mean, they still say they're very open to clients, which of course makes sense.

03:04But there is a lot more secrecy about their presentations and things.

03:07And they have this kind of very open academic approach of just sharing everything.

03:11And maybe it's just a reflection of the world we are in.

03:14We find this, the frustrated alpha, and we keep it for ourselves.

03:19And that leads to better performance.

03:20Yeah, I mean, it makes sense, right?

03:21If you have an edge, you want to keep it to yourself at certain times.

03:27And it does seem like they have an edge right now.

03:29For sure, they have.

03:30But they're not like, you know, we have Renaissance.

03:32We have so many hedge funds that are so secretive that it's almost impossible for us to figure out what's happening.

03:38They're not that far in the spectrum.

03:39But for sure, it seems like their secrecy is paying off and is rewarding some of those strategies.

03:45Even their simple equity strategies have changed so much over the years.

03:49They have the so-called adaptive models.

03:50So it leaves so little to the human that pretty much the machine decides everything and looks on their whole history of 30 years of trading.

03:58So it's pretty fascinating.

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