June 3, 2025 • 17 mins
Cliff Asness, AQR Capital Management founder, talks about the current state of markets, his investing philosophy, where he sees buying opportunities and how President Donald Trump's policies could impact investors. He is joined by Bloomberg's Matt Miller, Katie Greifeld, and Sonali Basak.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:06):
AQR this year has been to double digit percentage returns
in key strategies, and that comes at a time when
many hedge funds have really been minting only marginal gains.
The gains have been in long short in multi strategy,
all with billionaire co founder clip Asda's trademark quantitative investing approach.
All of the forefront Asness joins us. Now, of course,
(00:27):
that is AQR Capital Management, founder, managing principle and chief
investment officer.
Speaker 1 (00:32):
How do you do it?
Speaker 2 (00:32):
How do you navigate this market at this moment?
Speaker 1 (00:35):
Very simply, Well, first, we generally do what we always do.
We are quants, which means we spread our bets out
fairly wide. We divide them into categories, and you mentioned
a few of them, one major one and the single
best on the year is individual stock picking. Now for us,
as you well know, that doesn't mean, you know, we
(00:55):
visit one company, and we probably have about two thousand
longs in a two thousand shorts, balanced by country and
mostly been not entirely balanced by industry. That's been a
super strong start to the year. Basically every aspect of
what we do is working with the exception of famous
value Investing. I actually kind of love that because sometimes
(01:17):
people think of us too much as a value shop.
So having a really strong period, but things like are
the fundamentals getting better? Or is it a profitable company?
Are they buying back shares or issuing shares? Is it
high beta or low beta? We prefer low. Is the
price momentum there, including even some newer techniques mL based,
(01:38):
natural language processing, alternative data. It's been strong across the
board except my baby from nineteen ninety value investing, but
I try not to care. I just care about the total.
The other thing really strong for us on the year
is trend falling, and this one I'm going to brag
now because it's not been a good year for trend falling.
(01:59):
In general. Price trends in the major markets have been
a disappointment. There's been a lot of whipsaw. In particular,
April was very painful whipsaw. But over the last I
don't know, seven years, we've diversified our trend following process
to do many, many more markets, so it's more spread
out and importantly to give a very significant way not
(02:21):
just a price trend, but to a fundamental and economic
trend and that's been great this year.
Speaker 2 (02:25):
Cliff, I feel like I could do this because I've
covered the tough times and the good times here and
right now for the good times for AQR. It's interesting
long short fund tracked by Bloomberg is down about one
percent on the year. You guys are up double digits
for long short in particular for the people who can't
spread their bets across thousands of firms and don't have
the machines at work to help.
Speaker 1 (02:47):
What can they learn?
Speaker 2 (02:49):
It looks like it's lower risk investments that are helping
you out. What are you finding that works well?
Speaker 1 (02:55):
The general philosophy quants believe, and there's some difference is
some of the more modern again the mL they'll try
of data. This analogy doesn't work for. But the core
things that quantitative investors believe in are not so dissimilar
to what a classic Graham and Dodd investor would believe in.
We believe in profitable companies that are reasonable multiple where
(03:15):
the fundamentals are getting better, where they're buying back rather
than issuing shares, and all SQL and it's always all
all s equal because everything's done at once. We can
love a company with a high beta, but all sql
we prefer lower market risk. Obviously, as a quant I'm
not skilled at doing this, But if I were to
do more concentrated investments, I would use these things as
(03:38):
a screen. I'd use it as where do I fish?
I want companies that look like this. Then a traditional
manager's job is to get the specifics right. They can
do wonderful and do things we can't do if they
hit a home run in one specific stock, and they
can utterly get destroyed if they get it wrong. We're
betting on the statistical average of good investing working. They
(04:01):
are betting on applying good investing to specific situations, and
both can work and both cannot work, but they are.
In fact, It's a great question because I think they
are more similar than people sometimes realize in philosophy, if
not in execution.
Speaker 3 (04:16):
By the way, it reminds me of you know, when
you say stock picking, I think of a random walk
down Wall Street. And when we were kids, the Wall
Street Journal did this experiment where they had staff members
through a dart at a board, and often that was
a better way to pick stocks than Wall Street analysts,
who were paid gazillions or at the time maybe hundreds.
Speaker 1 (04:36):
Of thousands of dollars. You know, so yeah, and I'm
sure if they redid that study, it's still true. If
I want to get really geeky, I'll tell you that
throwing darts gets you a big small cap microcap bias
because there's a lot more of them. But let's the
principle is correct. Active management picking specific stocks, be it
(04:57):
a concentrated manager or a very diverse did long short
manager's fully hedged is inherently an arrogant act. I know
anyone who's followed me will be shocked that I will
do an arrogant act. But the average can't win. Jack
Bogel was right, you add up everyone. It adds up
to the market. Some people underperform, some outperform, and the
(05:19):
average after fees and costs underperforms. So no one can
get around from that. With that, we need active management
in the world. We can't have a world of one
hundred percent indexing. That's a really weird world. What happens
when nobody is looking at prices and good active managers
I think can do well. But to believe you're one
of the good ones is an inherently arrogant act. So
(05:41):
I don't disagree. I certainly don't disagree with Burton at all.
I do think for someone who doesn't think they have
an edge or can find someone with an edge that
unfortunately he's passed. But I used to love to say,
my friend Jack Bogel is not a bad alternative, right.
Speaker 4 (05:58):
Right, And to that point, I'm speaking to David with
the co founder of Dimensional at twelve thirty and I
believe we'll have a pretty similar conversation about that. But
I want to talk about your market neutral strategy, your
market neutral fund as well, because I was.
Speaker 1 (06:10):
Playing around with some charts.
Speaker 4 (06:11):
It's also up about fifteen percent on a total return
basis this year. It's outperforming the S and P five
hundred over the last five years, but a lot of
that outperformance has come specifically from the past year.
Speaker 1 (06:24):
We were just speaking.
Speaker 4 (06:25):
With Gargey Chowdery over at Blackrock and she said that
right now she would be looking at market neutral strategies.
Speaker 1 (06:31):
So why is.
Speaker 4 (06:32):
Market neutral working so well in this specific environment.
Speaker 1 (06:35):
I'm going to give you a very unsatisfying answer. Oh no,
of course, we bet on these multiple themes, and I'm
only giving you a few of them. There are hundreds
of factors in our model, and one thing quants are
really bad at is telling a story about what. In fact,
when we can tell a story, it's usually bad news.
It's all value has gone so crazy, it's dominating what
(06:56):
we do and we have to stick with it. Oh,
and it's come back and the round trip has been go.
But there's a story. This year, there's been a tremendous
return x value to what we would call basic rational investing,
and I think you see that with maybe Europe out
performing the US, and that's one place. Value probably has
helped because Europe has been cheaper, but the market has
(07:21):
rewarded good companies that are getting better that aren't too risky.
We're not in a bubble period, and basically a bubble
period is the only period I fear. Doesn't mean we
won't do poorly at other times, I think we make
money much more of it than we don't, but we can.
We can get it wrong in any environment, but in
(07:41):
a bubble both valuation strategies and fundamentals get thrown out
the window. And that is very hard in those times
sticking with your process and having the wherewithal to see
it through I think can make you a lot of
money round trip, including the tough times. You know, those
are the tough ones.
Speaker 2 (08:00):
Speaking of tough times, it looks like a lot of
people are still keeping.
Speaker 1 (08:03):
Money on the sidelines for a rainy day.
Speaker 2 (08:05):
If you look at what money market fund assets have
been doing, they've been drawn down.
Speaker 1 (08:08):
A little bit, but not buy very much.
Speaker 2 (08:11):
They've really climbed. What do you tell people who are
sitting in cash and looking for the right buying opportunity
right now?
Speaker 1 (08:17):
First, you know, a pet peeve of mine is the
phrase money's on the sidelines, cash on the sidelines.
Speaker 3 (08:21):
Yeah, I've been hearing it for twenty five years.
Speaker 1 (08:23):
Cliff Under the moment, everyone says it, and what you
generally mean is people have embarrassed tin to them. But
what I always do, this is really geeky, But if
you try to get to the sidelines and sell your stocks,
you got to sell them to someone who just left
the sidelines. With that said, I think a lot of
managers are cautious and a lot of individual investors may
(08:45):
be less so. On the individual side, our view on
timing the market, I co authored a paper with one
of my partners, Anti Illminent. I'm having a good day
because I nailed this name. I've only known Anti for
almost forty years, but it's still you know, if you're
having a tough day, it's finished. It's a mouthful. But
we wrote a paper an institutional investor called Sin a
(09:09):
Little about timing the market, and it's a subtlety. You know,
it's easy to tell people never do this. You're a
disaster if you do this, And it's easy to tell
people even if it doesn't work out, get out now.
But Sin a Little says market timing is pretty freaking hard.
Combinations of basic things like trend following and valuation we
think do add some value long term. When the market
(09:32):
looks cheap and has been doing well lately on price
and fundamentals, we do think it's you can overweight somewhat
and vice versa. But the risk adjustin returns on that
trade are still low, so I think on net we're
probably close to neutral, maybe a little negative. Valuations is
pretty bad, particularly for US docs. The trend has gotten weaker,
(09:53):
but it's still because we look it up to about
a year horizon, still pretty decent. They're balancing out to
a pretty wimpy view. But I encourage wimpiness on this.
I don't know if there's anyone there who can do it,
but I think the universe of people who can can
can add a lot of value from really pure timing
is exceptionally small. One element of hypocrisy. What we do
(10:17):
in trend following takes net long and short positions, so
that will average flat the market, so that in a
very long term sense it is not timing but short term.
Of course, if you're doing trend following, you have lungs
and shorts. But even there we spread the bets pretty
far and wide.
Speaker 4 (10:33):
And Cliff, we were having this conversation last week on
my podcast with Matt Levine Money Stuff about this push
really to put private assets in the hands of retail investors,
either through ETFs or interval funds. The list goes on.
You said that you were going to head yourself, and
then you said it's a terrible idea. And I'm hoping
you can just expand on that a little bit.
Speaker 1 (10:53):
Why exactly what me to me is the whole thing's
not going to be fair.
Speaker 4 (10:57):
Was that a good setup?
Speaker 1 (10:58):
I said that last week? Yeah, I don't. My opinion
has completely changed. Tell us all right, I have some
cynicism about where we are in the private world. I've
written about this. I don't think they're necessarily bad investments
by any means. They may make a lot of money.
My cynicism is mainly about people understanding the risks. You know,
(11:20):
we try to create assets that are very low correlation
of markets by shorting as much as we're long. I
think we make money long term. I think we've made
a lot of money long term. But that doesn't make
a great investment. You have to do it well. But
it does really hedge. It creates something that's not very correlated.
Privates are simply long only equities, usually with some leverage applied,
(11:43):
and they look uncorrelated because they just don't tell you
the price is very often, and they can. They could
tell you every day, well, market went up, and we
know what our multiples are to the market, and it's
worth this today. So I don't think they're a true
alternative frankly in the sense an alternative way to buy
long only equities, and as such, they've gotten extremely popular,
(12:07):
partly because many of them have done very well, but
partly because we've been in a massive equity bull market
forever and selling equity exposure with reported risks that's lower,
not real risk, but reported risk turns out to be
a great business model. So it does feel like a
crowded place. It feels like not having to mark to market.
(12:29):
Being a liquid used to be when David Swinson pioneered
at Yale, used to be a bug that you got
paid for. Bearing a bug is you don't want this,
You don't want a liquid, so you need extra return
to compensate you. And he was brilliant at monetizing that. Well,
if it's a feature now, because it simply makes investments
easier to live with because you don't have to look.
(12:50):
You pay for a feature through lower returns. So they'll
be winners, they'll be great firms. I think some of
the firms out there, I'm less specific. You could no,
I'm not going to go there, but there are some
I really think we'll navigate this well. Yeah, but as
an industry, I think people think they're way too low risk,
they're way too popular, and they may have market or
(13:11):
sub market returns as what was once a bug is
a feature that you pay for in terms of return.
So with all that said, hey, if you have those
concerns and You don't have to agree with me, but
if you share those concerns, saying, hey, you know what
we should do? We have all these things, you know,
who would buy this? Now, retail doesn't always work out
(13:32):
for retail.
Speaker 4 (13:33):
Well, one of the pushbacks here because private assets.
Speaker 1 (13:35):
Of course, we're also talking.
Speaker 4 (13:36):
About private companies, and there's the argument out there is
that companies are staying private much longer, and some of
the highest growth and most exciting companies I'm thinking Stripes, SpaceX,
open Ai, the list goes on, are in the private markets,
and perhaps retail should have access to that innovation. I
wonder if that holds water with you.
Speaker 1 (13:57):
Directionally, I buy the argument there has been a shift
to more private. It doesn't make them necessarily fairly priced investments.
You know, the private world has changed. It used to
have more of a value flavor. The old LBO of
this company is too cheap. It has somewhat, at least
to my casual observation, switched to a little bit more
(14:17):
of a growth investment, which also makes it probably a
riskier investment. And it's a riskier investment that's still not
reporting its daily risk. So I'll give you part of
that argument. I wouldn't say private should not be part
of a portfolio. I sit on quite a few investment
committees over my time, and I never stand up and
(14:38):
bang my fist and say we have to get out
of these. But I do say we should be treating
them as risky or more risky than the stock market.
And that is not always the case. Sometimes you see,
I'll be geeky for a second, like I'm ever not geeking. Yeah,
if markets have a fifteen six to twenty percent annual volatility,
(14:59):
you'll see people put out graphics where it's like privates
four percent, And yeah, those are the reported numbers, but
I promise you the actual number is thirty two percent.
So if I worry about some institutions not getting that,
I worry more about retail not getting it. Shanali will
explain that to me after the thirty five is bigger
than fifteen.
Speaker 3 (15:19):
No, No, I mean if the numbers reporters are four. Anyway,
I have a different question, a different kind of line
of questioning here, which is I think AQR is one
of the most interesting from an academic standpoint firms out there.
I mean, I love have always loved the quant Jim
Simons and everybody who's doing your work, because you're so
closely involved with universities, and I think of the University
(15:41):
of Chicago when I think of AQR, and I wonder
what you make of this push to reduce foreign students
studying here in America because President Trump recently study things
Harvard should only have fifteen percent foreign students, they have
like twenty seven percent. I looked up Universe Chicago twenty
four percent. And you work so closely with these students
(16:02):
and professors, So what does it mean to you.
Speaker 1 (16:04):
Well, you know, I'm going to try to stay as
a political as possible because I want to survive the week. Yeah,
I will speak purely as a self serving consumer of
great researchers. We have found the great students at great
PhD programs and even at great NBA programs to be
(16:25):
a tremendous resource for AQR. Not all of them by
any means, but a fairly decent number have been international students.
And as a business person, I'm certainly concerned about that
drying up. It's been a real talent pool that I
think makes them better off and makes us better off.
I don't think they're necessarily they're only taking American jobs
(16:46):
if we find them better than the Americans, and we
don't always buy any means there are a lot of great Americans,
but reducing the talent pool for us is a negative,
and I imagine we can't be the only one, so
I think it is somewhat anti growth to reduce the
talent pool. A lot of some of these people go
back to their home country, but a lot of state
in the United States. So there are aspects of what
(17:08):
President Trump is doing. There's some messed up things in
the university world, and he doesn't have a whole lot
of levers, so maybe he's using what he thinks he
needs to use. But this I don't like.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:06):
AQR this year has been to double digit percentage returns
in key strategies, and that comes at a time when
many hedge funds have really been minting only marginal gains.
The gains have been in long short in multi strategy,
all with billionaire co founder clip Asda's trademark quantitative investing approach.
All of the forefront Asness joins us. Now, of course,
(00:27):
that is AQR Capital Management, founder, managing principle and chief
investment officer.
Speaker 1 (00:32):
How do you do it?
Speaker 2 (00:32):
How do you navigate this market at this moment?
Speaker 1 (00:35):
Very simply, Well, first, we generally do what we always do.
We are quants, which means we spread our bets out
fairly wide. We divide them into categories, and you mentioned
a few of them, one major one and the single
best on the year is individual stock picking. Now for us,
as you well know, that doesn't mean, you know, we
(00:55):
visit one company, and we probably have about two thousand
longs in a two thousand shorts, balanced by country and
mostly been not entirely balanced by industry. That's been a
super strong start to the year. Basically every aspect of
what we do is working with the exception of famous
value Investing. I actually kind of love that because sometimes
(01:17):
people think of us too much as a value shop.
So having a really strong period, but things like are
the fundamentals getting better? Or is it a profitable company?
Are they buying back shares or issuing shares? Is it
high beta or low beta? We prefer low. Is the
price momentum there, including even some newer techniques mL based,
(01:38):
natural language processing, alternative data. It's been strong across the
board except my baby from nineteen ninety value investing, but
I try not to care. I just care about the total.
The other thing really strong for us on the year
is trend falling, and this one I'm going to brag
now because it's not been a good year for trend falling.
(01:59):
In general. Price trends in the major markets have been
a disappointment. There's been a lot of whipsaw. In particular,
April was very painful whipsaw. But over the last I
don't know, seven years, we've diversified our trend following process
to do many, many more markets, so it's more spread
out and importantly to give a very significant way not
(02:21):
just a price trend, but to a fundamental and economic
trend and that's been great this year.
Speaker 2 (02:25):
Cliff, I feel like I could do this because I've
covered the tough times and the good times here and
right now for the good times for AQR. It's interesting
long short fund tracked by Bloomberg is down about one
percent on the year. You guys are up double digits
for long short in particular for the people who can't
spread their bets across thousands of firms and don't have
the machines at work to help.
Speaker 1 (02:47):
What can they learn?
Speaker 2 (02:49):
It looks like it's lower risk investments that are helping
you out. What are you finding that works well?
Speaker 1 (02:55):
The general philosophy quants believe, and there's some difference is
some of the more modern again the mL they'll try
of data. This analogy doesn't work for. But the core
things that quantitative investors believe in are not so dissimilar
to what a classic Graham and Dodd investor would believe in.
We believe in profitable companies that are reasonable multiple where
(03:15):
the fundamentals are getting better, where they're buying back rather
than issuing shares, and all SQL and it's always all
all s equal because everything's done at once. We can
love a company with a high beta, but all sql
we prefer lower market risk. Obviously, as a quant I'm
not skilled at doing this, But if I were to
do more concentrated investments, I would use these things as
(03:38):
a screen. I'd use it as where do I fish?
I want companies that look like this. Then a traditional
manager's job is to get the specifics right. They can
do wonderful and do things we can't do if they
hit a home run in one specific stock, and they
can utterly get destroyed if they get it wrong. We're
betting on the statistical average of good investing working. They
(04:01):
are betting on applying good investing to specific situations, and
both can work and both cannot work, but they are.
In fact, It's a great question because I think they
are more similar than people sometimes realize in philosophy, if
not in execution.
Speaker 3 (04:16):
By the way, it reminds me of you know, when
you say stock picking, I think of a random walk
down Wall Street. And when we were kids, the Wall
Street Journal did this experiment where they had staff members
through a dart at a board, and often that was
a better way to pick stocks than Wall Street analysts,
who were paid gazillions or at the time maybe hundreds.
Speaker 1 (04:36):
Of thousands of dollars. You know, so yeah, and I'm
sure if they redid that study, it's still true. If
I want to get really geeky, I'll tell you that
throwing darts gets you a big small cap microcap bias
because there's a lot more of them. But let's the
principle is correct. Active management picking specific stocks, be it
(04:57):
a concentrated manager or a very diverse did long short
manager's fully hedged is inherently an arrogant act. I know
anyone who's followed me will be shocked that I will
do an arrogant act. But the average can't win. Jack
Bogel was right, you add up everyone. It adds up
to the market. Some people underperform, some outperform, and the
(05:19):
average after fees and costs underperforms. So no one can
get around from that. With that, we need active management
in the world. We can't have a world of one
hundred percent indexing. That's a really weird world. What happens
when nobody is looking at prices and good active managers
I think can do well. But to believe you're one
of the good ones is an inherently arrogant act. So
(05:41):
I don't disagree. I certainly don't disagree with Burton at all.
I do think for someone who doesn't think they have
an edge or can find someone with an edge that
unfortunately he's passed. But I used to love to say,
my friend Jack Bogel is not a bad alternative, right.
Speaker 4 (05:58):
Right, And to that point, I'm speaking to David with
the co founder of Dimensional at twelve thirty and I
believe we'll have a pretty similar conversation about that. But
I want to talk about your market neutral strategy, your
market neutral fund as well, because I was.
Speaker 1 (06:10):
Playing around with some charts.
Speaker 4 (06:11):
It's also up about fifteen percent on a total return
basis this year. It's outperforming the S and P five
hundred over the last five years, but a lot of
that outperformance has come specifically from the past year.
Speaker 1 (06:24):
We were just speaking.
Speaker 4 (06:25):
With Gargey Chowdery over at Blackrock and she said that
right now she would be looking at market neutral strategies.
Speaker 1 (06:31):
So why is.
Speaker 4 (06:32):
Market neutral working so well in this specific environment.
Speaker 1 (06:35):
I'm going to give you a very unsatisfying answer. Oh no,
of course, we bet on these multiple themes, and I'm
only giving you a few of them. There are hundreds
of factors in our model, and one thing quants are
really bad at is telling a story about what. In fact,
when we can tell a story, it's usually bad news.
It's all value has gone so crazy, it's dominating what
(06:56):
we do and we have to stick with it. Oh,
and it's come back and the round trip has been go.
But there's a story. This year, there's been a tremendous
return x value to what we would call basic rational investing,
and I think you see that with maybe Europe out
performing the US, and that's one place. Value probably has
helped because Europe has been cheaper, but the market has
(07:21):
rewarded good companies that are getting better that aren't too risky.
We're not in a bubble period, and basically a bubble
period is the only period I fear. Doesn't mean we
won't do poorly at other times, I think we make
money much more of it than we don't, but we can.
We can get it wrong in any environment, but in
(07:41):
a bubble both valuation strategies and fundamentals get thrown out
the window. And that is very hard in those times
sticking with your process and having the wherewithal to see
it through I think can make you a lot of
money round trip, including the tough times. You know, those
are the tough ones.
Speaker 2 (08:00):
Speaking of tough times, it looks like a lot of
people are still keeping.
Speaker 1 (08:03):
Money on the sidelines for a rainy day.
Speaker 2 (08:05):
If you look at what money market fund assets have
been doing, they've been drawn down.
Speaker 1 (08:08):
A little bit, but not buy very much.
Speaker 2 (08:11):
They've really climbed. What do you tell people who are
sitting in cash and looking for the right buying opportunity
right now?
Speaker 1 (08:17):
First, you know, a pet peeve of mine is the
phrase money's on the sidelines, cash on the sidelines.
Speaker 3 (08:21):
Yeah, I've been hearing it for twenty five years.
Speaker 1 (08:23):
Cliff Under the moment, everyone says it, and what you
generally mean is people have embarrassed tin to them. But
what I always do, this is really geeky, But if
you try to get to the sidelines and sell your stocks,
you got to sell them to someone who just left
the sidelines. With that said, I think a lot of
managers are cautious and a lot of individual investors may
(08:45):
be less so. On the individual side, our view on
timing the market, I co authored a paper with one
of my partners, Anti Illminent. I'm having a good day
because I nailed this name. I've only known Anti for
almost forty years, but it's still you know, if you're
having a tough day, it's finished. It's a mouthful. But
we wrote a paper an institutional investor called Sin a
(09:09):
Little about timing the market, and it's a subtlety. You know,
it's easy to tell people never do this. You're a
disaster if you do this, And it's easy to tell
people even if it doesn't work out, get out now.
But Sin a Little says market timing is pretty freaking hard.
Combinations of basic things like trend following and valuation we
think do add some value long term. When the market
(09:32):
looks cheap and has been doing well lately on price
and fundamentals, we do think it's you can overweight somewhat
and vice versa. But the risk adjustin returns on that
trade are still low, so I think on net we're
probably close to neutral, maybe a little negative. Valuations is
pretty bad, particularly for US docs. The trend has gotten weaker,
(09:53):
but it's still because we look it up to about
a year horizon, still pretty decent. They're balancing out to
a pretty wimpy view. But I encourage wimpiness on this.
I don't know if there's anyone there who can do it,
but I think the universe of people who can can
can add a lot of value from really pure timing
is exceptionally small. One element of hypocrisy. What we do
(10:17):
in trend following takes net long and short positions, so
that will average flat the market, so that in a
very long term sense it is not timing but short term.
Of course, if you're doing trend following, you have lungs
and shorts. But even there we spread the bets pretty
far and wide.
Speaker 4 (10:33):
And Cliff, we were having this conversation last week on
my podcast with Matt Levine Money Stuff about this push
really to put private assets in the hands of retail investors,
either through ETFs or interval funds. The list goes on.
You said that you were going to head yourself, and
then you said it's a terrible idea. And I'm hoping
you can just expand on that a little bit.
Speaker 1 (10:53):
Why exactly what me to me is the whole thing's
not going to be fair.
Speaker 4 (10:57):
Was that a good setup?
Speaker 1 (10:58):
I said that last week? Yeah, I don't. My opinion
has completely changed. Tell us all right, I have some
cynicism about where we are in the private world. I've
written about this. I don't think they're necessarily bad investments
by any means. They may make a lot of money.
My cynicism is mainly about people understanding the risks. You know,
(11:20):
we try to create assets that are very low correlation
of markets by shorting as much as we're long. I
think we make money long term. I think we've made
a lot of money long term. But that doesn't make
a great investment. You have to do it well. But
it does really hedge. It creates something that's not very correlated.
Privates are simply long only equities, usually with some leverage applied,
(11:43):
and they look uncorrelated because they just don't tell you
the price is very often, and they can. They could
tell you every day, well, market went up, and we
know what our multiples are to the market, and it's
worth this today. So I don't think they're a true
alternative frankly in the sense an alternative way to buy
long only equities, and as such, they've gotten extremely popular,
(12:07):
partly because many of them have done very well, but
partly because we've been in a massive equity bull market
forever and selling equity exposure with reported risks that's lower,
not real risk, but reported risk turns out to be
a great business model. So it does feel like a
crowded place. It feels like not having to mark to market.
(12:29):
Being a liquid used to be when David Swinson pioneered
at Yale, used to be a bug that you got
paid for. Bearing a bug is you don't want this,
You don't want a liquid, so you need extra return
to compensate you. And he was brilliant at monetizing that. Well,
if it's a feature now, because it simply makes investments
easier to live with because you don't have to look.
(12:50):
You pay for a feature through lower returns. So they'll
be winners, they'll be great firms. I think some of
the firms out there, I'm less specific. You could no,
I'm not going to go there, but there are some
I really think we'll navigate this well. Yeah, but as
an industry, I think people think they're way too low risk,
they're way too popular, and they may have market or
(13:11):
sub market returns as what was once a bug is
a feature that you pay for in terms of return.
So with all that said, hey, if you have those
concerns and You don't have to agree with me, but
if you share those concerns, saying, hey, you know what
we should do? We have all these things, you know,
who would buy this? Now, retail doesn't always work out
(13:32):
for retail.
Speaker 4 (13:33):
Well, one of the pushbacks here because private assets.
Speaker 1 (13:35):
Of course, we're also talking.
Speaker 4 (13:36):
About private companies, and there's the argument out there is
that companies are staying private much longer, and some of
the highest growth and most exciting companies I'm thinking Stripes, SpaceX,
open Ai, the list goes on, are in the private markets,
and perhaps retail should have access to that innovation. I
wonder if that holds water with you.
Speaker 1 (13:57):
Directionally, I buy the argument there has been a shift
to more private. It doesn't make them necessarily fairly priced investments.
You know, the private world has changed. It used to
have more of a value flavor. The old LBO of
this company is too cheap. It has somewhat, at least
to my casual observation, switched to a little bit more
(14:17):
of a growth investment, which also makes it probably a
riskier investment. And it's a riskier investment that's still not
reporting its daily risk. So I'll give you part of
that argument. I wouldn't say private should not be part
of a portfolio. I sit on quite a few investment
committees over my time, and I never stand up and
(14:38):
bang my fist and say we have to get out
of these. But I do say we should be treating
them as risky or more risky than the stock market.
And that is not always the case. Sometimes you see,
I'll be geeky for a second, like I'm ever not geeking. Yeah,
if markets have a fifteen six to twenty percent annual volatility,
(14:59):
you'll see people put out graphics where it's like privates
four percent, And yeah, those are the reported numbers, but
I promise you the actual number is thirty two percent.
So if I worry about some institutions not getting that,
I worry more about retail not getting it. Shanali will
explain that to me after the thirty five is bigger
than fifteen.
Speaker 3 (15:19):
No, No, I mean if the numbers reporters are four. Anyway,
I have a different question, a different kind of line
of questioning here, which is I think AQR is one
of the most interesting from an academic standpoint firms out there.
I mean, I love have always loved the quant Jim
Simons and everybody who's doing your work, because you're so
closely involved with universities, and I think of the University
(15:41):
of Chicago when I think of AQR, and I wonder
what you make of this push to reduce foreign students
studying here in America because President Trump recently study things
Harvard should only have fifteen percent foreign students, they have
like twenty seven percent. I looked up Universe Chicago twenty
four percent. And you work so closely with these students
(16:02):
and professors, So what does it mean to you.
Speaker 1 (16:04):
Well, you know, I'm going to try to stay as
a political as possible because I want to survive the week. Yeah,
I will speak purely as a self serving consumer of
great researchers. We have found the great students at great
PhD programs and even at great NBA programs to be
(16:25):
a tremendous resource for AQR. Not all of them by
any means, but a fairly decent number have been international students.
And as a business person, I'm certainly concerned about that
drying up. It's been a real talent pool that I
think makes them better off and makes us better off.
I don't think they're necessarily they're only taking American jobs
(16:46):
if we find them better than the Americans, and we
don't always buy any means there are a lot of great Americans,
but reducing the talent pool for us is a negative,
and I imagine we can't be the only one, so
I think it is somewhat anti growth to reduce the
talent pool. A lot of some of these people go
back to their home country, but a lot of state
in the United States. So there are aspects of what
(17:08):
President Trump is doing. There's some messed up things in
the university world, and he doesn't have a whole lot
of levers, so maybe he's using what he thinks he
needs to use. But this I don't like.
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