Yale School of Management

Making the Theoretical Practical

Colloquium in Asset Management

Cliff Asness can draw a straight line from his time as a doctoral student at the University of Chicago to his current role as managing and founding principal at the investment firm AQR Capital Management. At AQR, Asness has joined the theoretical and the practical, using the frameworks he developed while working on his PhD to run funds with actual clients, gains, and losses.

Asness told the story of his career to EMBA students as part of the Colloquium in Asset Management. After graduate school, Asness first went to Goldman Sachs, where initially his work had little to do with his academic training. But he said other firms were forming “quant teams” to deploy academic theories in the markets, and Goldman Sachs asked him to create one for them. “We had this scary, open-ended mandate: see if this academic stuff can make clients actual money,” he said.

It did, and Asness spent six years at Goldman Sachs running the quant team before founding AQR with three partners in 1998, with the goal of applying quantitative academic finance to real markets. Its focus is on value and applying momentum investment strategies aggressively in global markets.  

While the firm has experienced much success, it has also had some significant down periods, most notably those coinciding with the tech bubble and the financial crisis. Along the way, the firm refined its approach. Asness said that AQR has been able to capitalize on the human errors that can send a stock—or an entire market—careening in one direction or another.

“Part of why we make our money, a big part, comes from behavioral biases,” he said. “I’m probably somewhere between Eugene Fama and Bob Shiller on the Noble Prize spectrum of efficient markets to behavioralism.”

But, he added, this doesn’t mean AQR has made money each time the market has acted irrationally. The firm was long cheap stocks and short expensive stocks during the tech bubble. It was a strategy that turned out badly for AQR. 

“The tech bubble was a terrible period for value investing,” he said. “When people make errors, we make money. A crazy world should be a good thing for me long-term. Just not that year.”

About the Event

Cliff Asness, Managing & Founding Principal at AQR Capital Management, LLC., will take part in a Colloquium in Asset Management on January 22.

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