Cliff Asness On Quantitative Investing, Technology And Hedge Funds

An interview with billionaire quantitative investor and co-founder of AQR Capital Management,Clifford Scott Asness. In this interview, Cliff discusses what a Quant is and how different funds use technology in investing. Cliff also talks about the value of hedge funds.

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Clifford Scott Asness: Quantitative Investing, Technology And Hedge Funds

Transcript

Everybody this is Clifford Scott Asness of course.

How did you get Don Pardo to introduce us. I was deep in I was cool. You like that. I did. We can arrange more of that for you. Cliff is a quantum they knew that.

Who knew what a quant was until August of 2007.

Today Kwon's are an accepted if not understood part of the market. Cliff continually worries about being misunderstood but they're increasingly viewed with anxiety awe and even fear. It's your job to calm everybody down. Cliff what's a Kwon's. And is that definition different today than it used to be.

Well I'm I'm probably going to fail at this because we have to first step back and admit that the definition is broad and fuzzy.

Like most quantum I did I'm if you read the term quantize used it can mean and be used as if the entire definition applies to this. It can mean extremely high frequency pattern matching using big data and machine learning and trying to discern short term moves. It can mean certain investment products that that are more to managed futures risk parity. It can mean something that is probably more more associated with closer to what we do factor or smart Badir investing which can be quite complex and you can work at it. But at its simplest form is not Big Data physicsPh.D. Its sort. The firms and by the ones with low prices to book. It's not exactly you know he was MC squared. So for one thing quanti is a very broad spectrum. If there are fears that we're entering into an unknown world or something I still think they're probably overdone. But the the very high frequency big data AI world is at least really new. On the other end the quant used for factor investing you know Buy cheap sell expensive good momentum bad momentum.

I think that's just regular old good investing done in a systematic way. I don't think either use it at all. It's better now.

It's it may have some advantages in that it's diversified it's often are much lower cost but yet nothing new at all is sadly accurate.

Are you encouraged that more and more investors seem to be growing comfortable if not familiar with the idea of quantitative strategies.

That would imply I'm ever encouraged. I'm usually in a panic every few years I'm in a panic that everyone hates us and we're doing lousy and every few years I'm in a panic it's feast or famine that everyone likes us too much so comfortable is probably not the right word. I Joe of the two panics I enjoy people like us a lot. I enjoy that panic more but I do think the world at least you know when I talk about confusion. To be honest I think the people investing in it by and large and we are not we are not the retail investor we're not going to individuals but the institutions even on the mutual fund side the financial advisers who are moving towards it. I do think they get it. I think when they invest in an Ikhwan product they could tell you the same story. Now maybe even better that I'm telling you and that that I find comforting.

I do think they're buying something that they understand what they're buying up and what about. So you mentioned HFT. You mentioned you mentioned big data there is beyond that the growth more generally of algorithmic investing the sheer power of some of the machines behind it. I'm sure you employ some of these machines. The success of firms the performance I should say of firms like yours Renaissance two sigma and then there is this.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver