Last night journalist Frank Fabozzi interviewed investment legend Cliff Asness (pictured) live, here are some of the highlights from the never understated AQR principle.
When asked if AQR is a hedge fund, Mr Asness sets off. He replied: “AQR has never been a hedge fund. It’s one of my pet peeves in particular journalists do this. 22 years ago they’d do it because it sounded sexier back then now it just sounds more evil. It’s never been true, we run some hedged products and we run a lot of traditional beat the benchmark no leverage no shorting very traditional products so hedge fund is not an accurate summary but I’ve given up any real hope of trying to change the world’s view.”
Mr Asness cuts of a controversial figure for some, as he’s often both a defender and attacker of hedge funds. He added: “You know my criticisms of hedge funds working with indices of hedge funds which have their flaws, they don’t fully hedge positive correlerations to the market with positive betas and given that they charge a lot for that. A 25 percent performance fee might make sense if it’s pure alpha but it doesn’t make sense for passive beta. Jack Bogle charging 2 and 20 for S%P 500 exposure is something you don’t see. I’m a fan of some hedged strategies and there are some great managers.
“Another one is over carried interest tax treatment, I’m not bothered about changing that and I’m not being charitable we don’t get a lot of upside to its reduction, I’m ok with politicians saying that but its often thrown at hedge funds it’s almost exclusively a private equity issue, we don’t carry things long enough. The way it was written it applied to all financial firms even if you got no financial benefit from it, taxes are the prices we pay for civilisation but taking my marginal tax rate from 50-70 percent?”
When Mr Fabozzi raised the issue with US politician Elizabeth Warren, Mr Asness replied with faux shock, stating: “you really gonnna start with that and put that in my head? I’m joking. I’m concerned when things that aren’t true become the norm, particularly prior to COVID, hedge funds had destroyed trillions of dollars by not keeping up with the S&P, my criticism of hedge funds is that they should be fully hedged in which case they would have kept up with the S&P even less as they’re supposed to be a diversifying investment.”
Mr Fabozzi was interested to hear what Mr Asness had written to the Obama administration in 2008-2009 when they blamed the hedge fund industry for the failure of Chrysler Car company. In fact Mr Asness had never officially signed off on his paper to the administration but gave a flavour of it anyway. He said: “I wasn’t against everything Obabma said but this was aimed at all credit money managers. They said hedge funds for PR.
“Holders of these bonds should not fight for their clients dollars but for patriotism or UAW at the time. Perfectly valid but money managers aren’t allowed to be patriotic with their client’s money without their clients express permission, imagine you invested with me and you asked how the investment went. It went fine but your account is all the way down to zero as I gave all the money to cancer research. We should be sued by our clients if we didn’t fight for our client’s money.”
Other highlights from this entertaining interview include Mr Asness’ view that there are too many people selling ESG products to gullible people. In fact he stated that: “You’re changing the world by making the discount for evil companies steeper. A higher discount rate means greater expected returns.”
He finished with his undying affinity for value investing. “Value isn't broken, just in a bubble and we’re sticking with it like grim death.”
