Cliff Asness

Clifford Scott Asness (/ˈæznəs/; born October 17, 1966) is an American billionaire hedge fund manager and the co-founder of AQR Capital Management.

Clifford Asness
Born (1966-10-17) October 17, 1966
Queens, New York, U.S.
Alma materUniversity of Pennsylvania
University of Chicago Booth School of Business
OccupationHedge fund manager
EmployerAQR Capital Management
Net worthUS$2.6 billion (April 2020)[1]
Spouse(s)Laurel Elizabeth Fraser

Early life and early education

Asness was born to a Jewish family, in Queens, New York, the son of Carol, who ran a medical education firm, and Barry Asness, an assistant district attorney in Manhattan. His family moved to Roslyn Heights, New York when he was four. He attended the B'nai B'rith Perlman Camp and graduated from Herricks High School.[2]

Education

His undergraduate studies at University of Pennsylvania included a double major in which he studied computer science and finance at Jerome Fisher Program in Management and Technology (M&T).[3] In 1988, he graduated summa cum laude.[3] Asness's interest in finance and portfolio management began, while he worked a research assistant in the Finance Department at Wharton,[3] and learned to use "coding computer programs" to analyze markets" and "test economic and financial theories".[4]

In 1994, Asness completed his PhD in finance at the University of Chicago.[5][6] Asness was the Teaching Assistant (TA) for his dissertation adviser, Nobel laureate Eugene Fama[6][3] Fama—who was also Asness' mentor[7] —and the economist, Kenneth French, who were both influential and widely-respected empirical financial economists, had established the foundations of their Fama–French three-factor model in 1992.[8][Notes 1] Fama and French had contrasted value stocks with growth stocks. Since Fama and French's inception of value stocks, "quants have designed algorithms that can scour market data" looking for "factors".[9]

Asness' doctoral dissertation was on "the performance of momentum trading, buying stocks with rising prices". Asness asserted that profits consistently beating market averages were attainable by exploiting both value and momentum. Asness concept of value was referred to in the context of fundamental analysis as a way of assessing the true worth of a security. His use of the concept of momentum referred to betting that the value will continue to go up or down as it did in the recent past. While he did not originate these concepts, Asness was credited with being the first to compile enough empirical evidence across a wide variety of markets to bring the ideas into the academic financial mainstream.[6]

Global Alpha

Asness started his career in 1990, when he was 24 and still a PhD student.[7] In the early 1990s, he had left academia, to the regret of his mentor, to become manager of Goldman Sachs Asset Management's (GSAM) "new quantitative research desk". He invited two friends from his cohort at the University of Chicago to join him at GSAM. Together, they began "developing models to evaluate risk in currencies, bonds and entire economies."[4] While the "idea of factors" came from Fama and French, it was first "put into practice" in the late 1990s by Asness, according to The Economist.[9]

Asness and his team at GSAM, built on Fama and French's idea of factors,[8] and combined their work with insights he had gained from his own PhD research.[3][9]

Asness worked as GSAM manager until 1997, when he and some members of the GSAM team, left to start their own quant hedge fund.[4][10]

In 1995, Asness persuaded a few partners at Goldman to provide him with an initial US$10-million investment to employ the computer-driven models that his team had developed, to invest in the market.[11][4][12][11]

When the $10 million initial investment reached $100 million, Goldman opened the fund to the public—the Goldman Sachs Global Alpha Fund.[4] Global Alpha, a systematic trading hedge fund was one of the earliest "quant vehicles" in the industry. The fund became known for high-frequency trading and furthered the careers of Asness and Mark Carhart.[11] Asness and his team used complicated computerized trading models to first locate underpriced equities, bonds, currencies, and commodities and then use short selling to take advantage of upward or downward price momentum.[13] The fund was designed to make money regardless of the direction the market was moving.[13] The Wall Street Journal described Asness and Carhart as "gurus" who managed Global Alpha, a "big, secretive hedge fund"—the "Cadillac of a fleet of alternative investments" that had made millions for Goldman Sachs by 2006.[14] By 2007, at its height, Global Alpha was "one of the biggest and best performing hedge funds in the world" with more than $12 billion assets under management (AUM).[15] Global Alpha was shutdown in the fall of 2011.[12] The quant fund had declined significantly by mid-2008, and continued its decline to $1 billion AUM through 2011.[16]

AQR Capital

In 1998 in New York, when he was 31-years old, Asness, David Kabiller, John Liew, and Robert Krail, co-founded AQR Capital Management—a "quantitative hedge fund firm".[6]

In 2002, Asness made $37 million, and in 2003, he made $50 million.[17] In 2004, AQR moved its headquarters from New York to Greenwich, Connecticut.[18]

AQR—Applied Quantitative Research—suffered losses during both the "2007 quant meltdown"[6] and the 2008 financial crisis[6]

By the end of 2010, AQR had $33 billion assets under management (AUM).[6][6][1][10]

An October 2010 Bloomberg article, described AQR as a "quantitative investment firm" that used "algorithms and computerized models to trade stocks, bonds, currencies and commodities."[2]

In 2016, Connecticut's State Bond Commission gave $35 million in financial aid to AQR, as part of a "broader move by the Connecticut government to persuade companies", including Bridgewater Associates, the biggest hedge fund in the world, to remain in Connecticut.[18] AQR's $28 million loan, would be "forgiven" if AQR kept "540 jobs within Connecticut" and created 600 new jobs by 2026.[18] AQR received grants worth $7 million to "help pay for an expansion."[18]

By 2017, according to Forbes, Asness had "moved away from hedge funds" and aggressively promoted lower-fees, more "liquid and transparent products", such as "mutual funds, that use computer models, often to replicate hedge fund returns".[6]

By 2019, AQR had become an "investment firm"—running "one of the world's largest hedge funds".[9] A 2020 Forbes profile described AQR (Applied Quantitative Research) as an agency that employs "factor-based investing," and offers products ranging from hedge funds to mutual funds.[1]

Selected academic publications

In a co-authored 2001 article published in the Journal of Portfolio Management, the authors described how, while some hedge fund managers are skilled in picking stocks, not all use effective methods.[Academic_publications 1] In their 2003 publication in the Financial Analysts Journal, Arnott and Asness wrote that contrary to prevailing theory, companies that paid higher dividends, actually had higher growth in earnings.[Academic_publications 2] They found that low payout ratios "preceded low earnings growth."[Academic_publications 2] In a 2003 Journal of Portfolio Management article, Asness said that it was a mistake to compare stock market's P/E ratio—earnings yield—to interest rates.[Academic_publications 3]

In a 2013 co-authored article published in The Journal of Finance, Asness, Tobias Moskowitz, and Lasse Pedersen found "consistent value and momentum return premia across eight diverse markets and asset classes, and a strong common factor structure among their returns."[Academic_publications 4][13][19] Since this strategy for accumulation is subject to the same constraints as any other and systemic effects in markets can invalidate it: AQR and other similar ventures lost massive amounts of wealth in the Financial crisis of 2007-2010 with assets declining from $39 billion in 2007 to $17 billion by the end of 2008.[13][Notes 2]

Net worth

According to an April 2020 Forbes' profile, Asness' estimated net worth was $2.6 billion.[1]

Publications about Asness

The New York Times published a "lengthy and glowing profile" of Asness on June 5, 2005.[17] The Times said that "what Asness really does is try to understand the relationship between risk and reward."[17]

Asness was featured in Scott Patterson's 2010 publication, The Quants,[20] along with Aaron Brown from AQR Capital Management, Ken Griffin from Chicago's Citadel LLC, James Simons from Renaissance Technologies, and Boaz Weinstein from Deutsche Bank.[21][22] a "scourge of bad practices in the money management industry" with the "intellectual chops to back up his attacks". Patterson said that Asness was known as "one of the smartest investors in the world." He had been a "standout student at the University of Chicago's prestigious economics department in the early 1990s, then a star at Goldman Sachs in the mid-1990s before branching out on his own in 1998 to launch AQR with $1 billion and change, a near record at the time."[20]

Economic and political commentary

Asness frequently comments on financial issues in print and on CNBC[23] and other television programs. He has frequently spoken out against high hedge fund fees. In particular, he has been critical of hedge funds with high correlations to equity markets, delivering stock index fund performance (which is available cheaply) at prices that could only be justified by extraordinary market insight that only the best hedge funds seem to deliver consistently.[10]

In 2008, he complained about short-selling restrictions in The New York Times.[24] In a 2010 Wall Street Journal op-ed (written with Aaron Brown) he claimed the Dodd-Frank financial reform bill would lead to regulatory capture, crony capitalism and a massive "financial-regulatory complex."[25] In Bloomberg columns, he discussed taxation of investment managers[26] and healthcare reform.[27] He posts commentary on financial issues, generally from a libertarian and efficient markets viewpoint.[28]

In an unpublished 2000 paper, "Bubble Logic," Asness criticized "nonsensical" and "unsustainable stock prices"[3] that caused the stock market tech bubble of 1999–2000. In a special 60th anniversary edition of The Financial Analysts Journal he said that this was also the fifth anniversary of the stock bubble peak,[29] he repeated his criticisms the tech bubble and those who claimed options should not be expensed.[30][31][32]

He was also known as an outspoken critic of U.S. president Barack Obama.[33] Two tracts he authored protest the Obama administration's treatment of Chrysler senior bondholders.[28][28][34][35]

In 2012, he was included in the 50 Most Influential list of Bloomberg Markets Magazine.

In 2013, Asness was a signatory to an amicus curiae brief submitted to the Supreme Court in support of same-sex marriage during the Hollingsworth v. Perry case.[36][37]

Personal life

In 1999, Asness married Laurel Elizabeth Fraser of Seward, Nebraska, the daughter of a retired Methodist pastor.[38][2] Asness has four children.[2]

He listed his Miami penthouse for sale in October 2019, after purchasing it from Boris Jordan in May 2018.[39]

Notes
  1. The Fama–French three-factor model expanded the Capital Asset Pricing Model (CAPM) by adding risk factors—size and value.
  2. According to Systemic Risk and Systematic Value, "Value investment means buying (or overweighing) securities that rank high on conventional valuation scales, such as book-price ratios or forward earnings yields. Momentum trading means 'going long' securities that have outperformed in the recent past."
gollark: Surely you could define the program state easily as "tape + position + accumulator" or something.
gollark: I should implement it in PotatOS as an optional syntax!
gollark: CONTRIBUTE, APIOFORM1
gollark: Idea: don't even have booleans just use `Option<()>`.
gollark: Delete precedence utilize RPN/lisp.

References
  1. "Cliff Asness". Forbes. Profile. April 25, 2020. Retrieved April 25, 2020.
  2. Teitelbaum, Richard (October 7, 2010). "Asness Meets 'Grim Reaper' Before Fund Rebounds From 50% Loss". A full-length 2010 biography and history of AQR.
  3. Hu, Han (September 1, 2006). "The Long and the Short of It". Wharton Magazine. Retrieved April 25, 2020.
  4. Castaldo, Joe (October 6, 2011). "The Ode: Goldman's global alpha fund". Canadian Business. Retrieved April 25, 2020.
  5. "Clifford S. Asness", Chicago Booth, Distinguished Alumni Awards, 2004, retrieved April 27, 2020
  6. Vardi, Nathan. "How Cliff Asness Became A Billionaire By Building A Kind Of Vanguard Of Hedge Funds". Forbes. Retrieved April 25, 2020.
  7. Are Markets Efficient? Baloney, Says Money Man Cliff Asness. Forbes via YouTube. April 22, 2014. Retrieved April 27, 2020.
  8. Fama, E. F.; French, K. R. (1993). "Common risk factors in the returns on stocks and bonds". Journal of Financial Economics. 33: 3–56. CiteSeerX 10.1.1.139.5892. doi:10.1016/0304-405X(93)90023-5.
  9. "The stockmarket is now run by computers, algorithms and passive managers". The Economist. October 5, 2019. ISSN 0013-0613. Retrieved April 25, 2020.
  10. "AQR Capital Management". Archived from the original on March 17, 2010. Retrieved April 25, 2020.
  11. "Goldman Sachs to Shut Its Global Alpha Hedge Fund". New York Times (DealBook). United States. The New York Times Company. September 15, 2011. Retrieved May 18, 2017.
  12. Rappaport, Liz (September 16, 2011). "Goldman to Close Global Alpha Hedge Fund". The Wall Street Journal (Markets). United States: Wall Street Journal. ISSN 0099-9660. Retrieved April 25, 2020.
  13. Tully, Shawn (December 19, 2011). "Cliff Asness: A hedge fund genius goes retail". Fortune. Archived from the original on November 3, 2013. Retrieved April 25, 2020.
  14. Smith, Randall (April 20, 2006). "Goldman Gurus Strike It Rich With Hedge Fund". Wall Street Journal. ISSN 0099-9660. Retrieved April 25, 2020.
  15. Carney, John (September 16, 2011). "How Goldman Sachs Lost One Of Its Crown Jewels, Global Alpha". Business Insider via CNBC. Retrieved April 24, 2020.
  16. LaCapra, Lauren Tara; Herbst-Bayliss, Svea (September 16, 2011). "Goldman to close Global Alpha fund after losses". New York, N.Y., United States: Reuters. Thompson Reuters. Retrieved April 25, 2020.
  17. Nocera, Joseph (June 5, 2005). "The Quantitative, Data-Based, Risk-Massaging Road to Riches". The New York Times. ISSN 0362-4331. Retrieved April 24, 2020.
  18. Stevenson, Alexandra (November 22, 2016). "Investment Funds Get Millions to Stay in Connecticut". The New York Times. ISSN 0362-4331. Retrieved February 5, 2019.
  19. "The relation between value and momentum strategies". Systemic Risk and Systematic Value (SRSV). Editorial. July 20, 2019. Retrieved April 25, 2020.
  20. Patterson, Scott (February 2, 2010). The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It. Crown Business. p. 352. ISBN 978-0-307-45337-2.
  21. "'The Quants': It Pays To Know Your Wall Street Math". NPR. February 1, 2010.
  22. Pressley, James (February 10, 2010). "Citadel's Griffin Skirts Disaster, Taleb Fumes: Books (Update1)". Bloomberg L.P.
  23. Kim, Tae (November 3, 2017). "Top Wall Street quant Cliff Asness doesn't believe AI will revolutionize investing". www.cnbc.com. Retrieved February 5, 2019.
  24. Joe Nocera: Cliff Asness Is Mad as Hell. September 21, 2008
  25. Asness, Clifford S.; Brown, Aaron (May 13, 2010). "The Treasury-Financial Complex". The Wall Street Journal. ISSN 0099-9660.
  26. "Money Managers May Face New Tax Increase: Clifford S. Asness". Bloomberg.com. June 14, 2010.
  27. "'Don't Ask' Is No Way to Run Health Care: Clifford S. Asness". bloomberg.com.
  28. "stumblingontruth". stumblingontruth.com.
  29. Asness, Clifford S. (2005). "Rubble Logic: What Did We Learn from the Great Stock Market Bubble?". The Financial Analysts Journal.
  30. Asness, Clifford S. (July 1, 2004). "Stock Options and the Lying Liars Who Don't Want to Expense Them". Financial Analysts Journal. 60 (4).
  31. Eisinger, Jesse. "Long and short" (PDF). Wall Street Journal. Archived from the original (PDF) on July 10, 2011. Retrieved April 25, 2020.
  32. Tilson, Whitney (September 24, 2004). "Stock options hurt US competitiveness". The Motley Fool.
  33. ABC News. "Meet President Obama's Newest Opponent, Clifford Asness". ABC News.
  34. Jessica Pressler. "Hedge-Funder Cliff Asness Is Not Afraid of Barack Obama". Daily Intelligencer.
  35. Peter Robinson (May 22, 2009). "The Protest Of A Patriot". Forbes.
  36. Avlon, John (February 28, 2013). "The Pro-Freedom Republicans Are Coming: 131 Sign Gay Marriage Brief". The Daily Beast.
  37. Kampeas, Ron (May 14, 2011). "Jewish, Republican, pro-gay rights". JTA. Archived from the original on December 13, 2011. Retrieved April 25, 2015.
  38. "Laurel Fraser and Clifford Asness". The New York Times. Weddings. August 15, 1999.
  39. "Billionaire Cliff Asness to List Trophy Miami Penthouse for 29.5 Million". Barron. Retrieved November 12, 2019.

Academic journals
  1. Asness, Cliff; Krail, Robert; Liew, John (2001). "Do hedge funds hedge? Be cautious in analyzing monthly returns". Journal of Portfolio Management. 28: 6–19. doi:10.3905/jpm.2001.319819.
  2. Arnott, Robert D.; Asness, Cliff (January 2003). "Surprise! Higher dividends = higher earnings growth" (PDF). Financial Analysts Journal. 59: 70–87. doi:10.2469/faj.v59.n1.2504. Retrieved April 24, 2020.
  3. Asness, Cliff (2003). "Fight the Fed Model". Journal of Portfolio Management. 30: 11–24. doi:10.3905/jpm.2003.319916.
  4. Asness, Clifford S.; Moskowitz, Tobias J.; Pedersen, Lasse Heje (June 2013). "Value and Momentum Everywhere: Value and Momentum Everywhere". The Journal of Finance. 68 (3): 929–985. doi:10.1111/jofi.12021. ISSN 0022-1082.
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