AQR Capital Management

In Cliff’s latest, he surprisingly says it can be appropriate for hedge funds to have betas of 1. Why is it surprising? Because Cliff gained early industry notoriety from his 2001 paper “Do Hedge Funds Hedge?”, in which the short answer was not nearly enough, and on average they didn’t add value after fees. In this post, Cliff discusses how deliberately adding some beta onto a diversifying alt may in fact be a good idea for capital efficiency. He shows that equitizing an alt strategy—i.e., adding an equity beta 1 futures position to it (but not at an alpha fee)—may be more capital efficient, as then investors could invest in the alt without reducing equity exposure. Additionally, high-volatility alts tend to be more capital efficient, as investors need to invest less in them to move the dial. Of course, the two can work quite nicely together – more aggressive and equitized alts. https://bit.ly/3DYCLTZ

Thank you to the more than 250 professional investors who joined us for the 12th Alternative Investments Colloquium event series, which were held across Geneva, Munich, Hamburg, and Frankfurt! Our gratitude extends to our great co-hosts – Bridgewater Associates, Brigade Capital, GCM Grosvenor, Morgan Stanley Investment Management, and WorldQuant Millennium Advisors. Attendees heard from senior members of each firm, including AQR’s Prof. Toby Moskowitz, Bridgewater’s Danny Galvin, Brigade Capital’s Donald E. Morgan, III, GCM Grosvenor’s Rajen Gokani, Morgan Stanley IM’s Mark van der Zwan, and WorldQuant’s Brian Crowell. Presentations covered a variety of topics, including hedge fund myths and realities, financial machine learning in the cross section, opportunities across credit markets, portfolio resiliency and fixed income, what allocators can learn from the multi-PM model, and integration of newer technologies in quantitative investment processes. For further questions please contact Axel Weiss (axel.weiss@aqr.com) for Germany and Alice Yang (alice.yang@aqr.com) for Switzerland.

AQR's "The Less-Efficient Market Hypothesis," authored by Cliff Asness, was awarded the "Outstanding Article" recognition in the 26th Annual Bernstein Fabozzi/Jacobs Levy Awards. The article explores how markets have become less informationally efficient over the past 30+ years, particularly due to technologies like social media, and discusses the implications for investors. Selected annually by its readers, the Bernstein Fabozzi/Jacobs Levy Awards acknowledge and seek to highlight the most innovative and compelling research published each year in The Journal of Portfolio Management. Read more: https://bit.ly/4iDjczQ

Options-based strategies, often labeled with words like “Buffered,” “Overlay,” and “Defined Outcome” have amassed a sizeable chunk of investors’ money, lured by the promise of market-like returns with less risk. These strategies use options to capture the upside or downside of an asset’s returns, and managers who employ a mix of options can tailor an asset’s risk/return profile to align with an investor’s goals. But can they actually deliver? To cut to the chase, I think these “buffered funds” are a marketing success, a success for the managers selling them, but a failure for investors lured in by the overpromise of magical equity returns without equity risk and then overcharged for the pleasure. But don’t just take my word for it – this guest post penned by my colleague Dan Villalon provides the data to back this up. https://bit.ly/428SGaD

Our first post in this series showed the power of deferral for building wealth; our second showed how robust the value of deferral is to changes in future tax rates on capital gains; our third considers whether deferral is still the right choice if an investor is able to find a strategy with a higher expected return. Here, we build on Part 3 by adding a tool investors and advisors increasingly have access to: tax-aware transition. https://bit.ly/4hkMhyA

2025 is off to a turbulent start, with geopolitics and elevated macroeconomic uncertainty driving market volatility. Historically, such environments have been challenging for equities. However, there are ways investors may be able to protect their portfolios. Investors could consider adding exposure to alternatives, particularly those that tend to perform well during periods of elevated volatility and equity market underperformance: • Trend Following: Tends to deliver strong performance in challenging periods for markets that are preceded by fundamental catalysts. • Multi-Strategy: Tends to deliver strong risk-adjusted returns by combining return sources that are both diversifying to each other and lowly correlated to markets. For the foreseeable future, it appears the only certainty is uncertainty.

Our first post in this series showed the power of deferral for building wealth, and our second showed how robust the value of deferral is to changes in future tax rates on capital gains. But what if you’re able to find a new investment with a higher expected return? Here, we look into how much of a return advantage your next investment needs to have to offset the value of gain deferral in your current portfolio. https://bit.ly/3FqnLPj

We're excited to connect with our partners here at the 2025 Forbes | SHOOK Top Teams Summit! If you're attending this year, please be sure to visit us in the Exhibitor Area to learn more about AQR's innovative strategies and connect with our team.

We were thrilled to recently host our 2025 London Forum. The event sparked insightful discussions on navigating today's dynamic landscape, covering key topics such as market concentration, machine learning in finance, political uncertainty, and trends in asset allocation. Thank you to all our attendees and participants for making this event a success!

As stock market valuations continue to rise and expected returns correspondingly fall, many investors are hoping to rely more on alpha from active management to make up for a potential future return gap. Unfortunately, long-only active management has struggled during recent history. We review why portable alpha may be an attractive alternative solution in today’s market environment. We also discuss what aspects of a portable alpha solution are important for investors to consider when selecting between implementations. Learn more: https://bit.ly/3D8lmrC