AQR regains its mojo as Tiger swoons
Two of the hedge fund industry’s biggest players have seen a violent change in fortunes lately.
We’ve written a fair bit about the shitco carnage, how it’s infected even Big Tech and the damage it has inflicted on growth stonk jockeys like Cathie Wood and Chase Coleman. But some people are loving it at the moment.
Take AQR Capital Management, the investment group led by Captain America fan, former Gene Fama protégé and full-time angry Twitter person Clifford Asness.
Despite a hilariously furious online rampage against the London Metal Exchange earlier this year, Cliff seems to be having a pretty great 2022, that encapsulates a regime shift in markets that will be welcome to many frustrated value investors.
FT Alphaville hears that AQR’s Absolute Return fund — its longest-running and broadest strategy that wraps together a lot of other funds — gained another 8.3 per cent after fees in April, lifting its year-to-date gains to 29.7 per cent. That comes after a 16.8 per cent gain in 2021. A bevy of its other funds is also doing well, despite the current market mess.
Although there are no signs that success is mellowing out Asness whatsoever, it must be incredibly welcome. After growing massively thanks to swelling interest in quant investing in the wake of the financial crisis, things went “significantly crappy” for AQR from about mid-2018 or so. (Full disclosure, this article almost perfectly top-ticked it.)
AQR’s assets under management went into reverse, falling from a 2018 peak of about $226bn to under $140bn last year. Several rounds of job cuts followed. The long-only fixed income investment arm started in 2014 was axed last year, and half-dozen or so of AQR’s top partners have left or been jettisoned.
AQR remains pressure, with assets under management sliding further to $117bn at the end of March, according to people familiar with the matter. But at least performance has perked up noticeably.
AQR’s equity market-neutral fund gained another 7 per cent to take its returns net of fees to 19.5 per cent for the year. A similar strategy with a stronger value stocks tilt has returned 35 per cent so far in 2022. AQR’s long-short equity fund is up 14.4 per cent, its global macro fund has returned 21 per cent, and the AQR Managed Futures Strategy has gained 26.7 per cent.
FTAV can guess at the secret behind this renaissance: an initially near-terminal decision to “sin a little” and tilt some of its strategies towards value stocks back in November 2019. Whoops.
When the pandemic almost immediately compounded an already multi-century record-smashingly bad run for value stocks it looked like a cataclysmic error. But today it probably helps explain why AQR is doing well despite rocky markets.
As the chart above shows, the flipside to the value renaissance is the collapse of growth stocks, after utterly dominating the post-financial crisis bull market.
What we are seeing now is a dramatic regime shift in what works in markets, triggered by the resurgence of inflation and central banks beginning to tighten monetary policy. The best example of how abrupt the change has been is Chase Coleman’s Tiger Global.
A year ago it was basking in adulation after having made over $10bn in 2020, making it the highest-grossing hedge fund in the industry according to LCH Investments. Coleman reportedly personally netted $2.5bn that year. Institutional Investor wrote a profile on “How Chase Coleman Became a Hedge Fund Legend”.
Today things look a little different. Tiger Global’s hedge fund lost 43.7 per cent between January and the end of April, which in dollar terms is probably one of the biggest hedge fund losses in history, as we wrote earlier this week.
Still, whether AQR continues to bounce or Tiger manages to stage a comeback (and given how tech stocks are puking again, it’s looking grim), the violent shift in fortunes for two of the hedge fund industry’s biggest players is a killer example of how fickle financial markets are. Yesterday’s dunces are tomorrow’s savants, and vice versa.