market folly

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Cliff Asness of AQR Capital who had a fireside chat on various finance topics.


Cliff Asness' Talk at Capitalize For Kids Conference 2016

•    Believes the role of hedge funds for a long time was to provide alpha and systematic strategies. Now there is generally not much value in the “hedge” aspect since many funds are correlated with the market

•    Regarding fees, thinks 2/20 is appropriate if you are able to isolate alpha (by hedging out beta using derivatives), essentially to make sure it is real market outperformance – however, true alpha is hard to find. Says the current fee structure is not sustainable for everyone.

•    Suggested two ideas for investment firms/allocators: have lower fees due to longer lockups periods which should better align all stakeholders. Secondly, with zero beta strategies management and performance fees that move inverse of correlation to the markets.

•    Sharpe Ratio: It a decent measure but not perfect. Believes it can generally add value to a portfolio if they are not correlated with markets.

•    Founded in late 1998 following tenure with Goldman Sachs. Initial focus was on systematic value however ran into difficulties as firm was essentially short expensive and long value. For AQR, capacity is a problem since liquidity is very important. They have closed strategies in the past.

•    Believes machine learning (AI) can disrupt anyone doing something with high frequency, generally thinks fundamental stock picking will continue to work.

•    Return distribution is quite “visible” in bonds. Limited returns since rates are so low.

•    Same with stocks since they are expensive. It’s tough to “buy at the 90th percentile and sell at the 99th”. Key is to find lots of uncorrelated assets


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.