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Seminars

An Alternative Future: An Exploration of the Role of Hedge Funds

Date: 11-14-2005
Start Time: 6:00pm
End Time: 7:30pm
Speaker: Cliff Asness, Managing and Founding Principal, AQR Capital Management, LLC.
Location: 412 Schapiro CEPSR, Davis Auditorium

ABSTRACT

One of the main financial market stories of the last three to five years has been the explosive growth of hedge funds. Depending on whom you ask, hedge funds are either the wave of the future, or they are a dangerous fad that has been grossly overcapitalized and all will end in ruin. Both sentiments contain elements of truth. The good news for hedge funds is that a portfolio structure that divides capital between traditional index funds to obtain beta (or market exposure) and hedge funds to earn alpha is very appealing. Traditional active management attempts to add alpha by adjusting index holdings in an arbitrary, confusing, and constraining manner. 1 It can be viewed as a tie-in sale between an index fund and a very constrained hedge fund. Hedge funds allow for a much clearer separation of the unrelated activities of obtaining index exposure and generating alpha, thus leading to clean portfolio construction, performance attribution, and fee breakdowns. Furthermore, sources of alpha and techniques unavailable in traditional mandates are available in this format. To fulfill their promise, hedge funds need to recognize and improve on shortcomings. We explore the role of hedge fund fees in more depth, examine various dark sides to hedge fund investing, and recommends future evolutionary changes needed to help hedge funds achieve their potential.

BIO

Clifford S. Asness, Ph.D. is a Managing and Founding Principal of AQR Capital Management, LLC

Prior to co-founding AQR Capital Management, Cliff was at Goldman, Sachs & Co. where he was a Managing Director and Director of Quantitative Research for the Asset Management Division. Cliff and his team at Goldman were responsible for building quantitative models to add value in global equity, fixed income and currency markets for Goldman clients and partners. Cliff has authored articles on many financial topics including multiple publications in the Journal of Portfolio Management and the Financial Analysts Journal. He has received the best paper award from the Journal of Portfolio Management twice (2001, 2003), a Graham and Dodd Excellence Award from the Financial Analysts Journal (2000), and the Graham and Dodd Award for the year’s best paper from the Financial Analysts Journal (2003) and best shorter perspectives piece (2004). Cliff was a visiting lecturer at Yale University’s School of Management where he co-taught a finance course, and has lectured periodically at the Massachusetts Institute of Technology and the Tuck School of Business at Dartmouth. He is on the editorial board of the Journal of Portfolio Management, the editorial board of the Financial Analysts Journal, and the governing board of the Courant Institute of Mathematical Finance at NYU. Cliff received a BS in Economics from the Wharton School and a BS in Engineering from the Moore School of Electrical Engineering, both graduating summa cum laude, at the University of Pennsylvania. He received an MBA with high honors and a Ph.D. in Finance from the University of Chicago.

HANDOUTS FOR THE SEMINAR

An Alternative Future
An Alternative Future Part 2
An Alternative Future (originally powerpoint file)