As we have demonstrated over the last 14-15 months, we cannot control short-term performance (we hope we have some control, we certainly do have confidence, in our ability to generate great outcomes for our clients in the long term). Of course, when things are going poorly, you “re-question” everything, including keeping an open mind that “this time might truly be different.” 1 1 Close Though, admittedly with some rational Bayesian cynicism about how rarely this is true. I’ve certainly addressed that myself (here, here, here and here) and as a firm we remain obsessed with it. But, barring finding a smoking gun, and knowing strategies like ours go through tough times, and having weathered and recovered after several in our 20+ years at AQR (and longer implementing similar strategies), we are largely left with continuing to enhance our process as we always do while rooting (and root we do!) for long-term themes (like value, momentum, carry, quality, etc.) that we believe in deeply to go back to delivering soon. There is just frustratingly little one can actually do (barring actually finding a smoking gun) in the short term when strategies with good, 2 2 Close The long-term live and backtested evidence, and the intuition behind our process, is absolutely unshaken by this very tough time. but nowhere near infallible, odds are on an excruciating streak.
This brings me to today’s topic (you knew I’d get there eventually right?). What else can you do, other than try to track down every hypothesis for why now might be different, when you are going through a very tough time? Well, at the risk of being trite, you do everything else. You keep your clients fully informed with honesty and effort. You continue to invest in the business including building the highest quality teams in the industry. That is, you focus on what you can control in the short term.
What brought on this particular blog is that, as part of our significant Enterprise Risk effort, the operational risk team recently won a gratifying award. It seems odd, yes even to me, to see a headline “Asset Manager of the Year: AQR Capital Management.” 3 3 Close Risk.net’s OpRisk Asset Manager of the Year, 2019. But, of course, that headline is not for recent performance (that would indeed be really odd!). 4 4 Close Though not entirely impossible as some areas of what we do (e.g., defensive equity, our newer traditional fixed income efforts, risk parity, even managed futures, particularly in the less liquid area, has been better lately). But clearly a ridiculous claim firm-wide! It’s for process and team building in an often neglected, but super important, area. It’s for laying the ground work, the iceberg of effort beneath the waves, for delivering the returns we expect over the long term to come.
So I hope you’ll forgive some bragging during a tough time. But I’m proud of Graeme and his team and what we’ve built (and will continue to build). And, given my confidence about our process going forward, it’s a great comfort to me that we continue to execute on all the things we can control, and gratifying that it’s recognized. Thank you for indulging me. And serenity now!
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees.
Past performance is not a guarantee of future performance. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.
Information contained on third party websites that AQR may link to are not reviewed in their entirety for accuracy and AQR assumes no liability for the information contained on these websites.
Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. Hypothetical performance results are presented for illustrative purposes only.
Diversification does not eliminate the risk of experiencing investment loss.
Certain publications may have been written prior to the author being an employee of AQR.
This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.