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Clifford Asness, (MBA ’91, PhD ’94), is not your typical hedge fund manager according to a June 5 cover story in the New York Times Magazine. Not only does he speak out in a profession usually known for low-profiles, he believes hedge funds can do something other than just make the rich richer. Asness sees them as useful tools for institutional investors who want to diversify their investments and protect themselves from market swings.
When most people think of hedge funds, they recall legendary stories of managers who make mind-boggling sums of money for their wealthy clients and themselves. Those spectacular returns come from extremely high-risk bets on the market.
Asness approaches making money with hedge funds from a different perspective – one shaped by his training at the Chicago GSB where he studied finance with Eugene Fama, (MBA ’63, PhD ’64), Robert R. McCormick Distinguished Service Professor of Finance. Asness has developed a computer model that blends aspects of the efficient market theory advanced by Fama and his own insights into market momentum. While working on his thesis, Asness says Fama gave him memorable advice: “Go where the data takes you.”
The model Asness developed results in a portfolio that is “market neutral.” Using masses of current market data available, his fund is equally balanced between long and short positions. Not only does it provide diversification, but the result is positive returns with less risk than the overall market, according the Times. That situation is very appealing to institutional investors -- many of them university endowments – who have seen the value of their holdings eroded by market downturns.
The lengthy article compares and contrasts the history of traditional hedge funds with the AQR fund founded by Asness. And, because hedge funds are today’s version of the dot-com craze, the future of both types is the subject of much speculation.
The article is available online (for a fee) at the New York Times.