Cliff Asness - doctor, quant and billionaire

Cliff Asness is a living legend in the world of trading. His career isn't over yet, and he already commands respect. It's quite possible that he hasn't said the last word yet. He is definitely a person worth knowing. His Youtube interviews are a treasure trove of knowledge for every investor. His wealth is approximately $1,6 billion. It is also worth following Cliff's opinions on the market. He was named one of the 50 Most-Influential People in Global Finance by Bloomberg Markets. He is also a co-founder of AQR Capital Management. The hero of today's article is Clifford Scott Asness. He is a person who successfully combines an investment career with a scientific one.

Youth and education

Cliff Asness was born on October 17, 1966 in a Jewish family. His family home was in Queens, one of the boroughs of New York. His father owned a company specializing in medical education. His mother, on the other hand, was an assistant to the Manhattan District Attorney. The family placed great importance on the education of young Cliff.

He graduated from Herricks High School and the University of Pennsylvania. He studied two faculties at the university: economy (at Wharton School) and computer science (Moore School of Electrical Engineering) - both with honors (summa cum laude). It was then that he became interested in finance. Portfolio management was particularly interesting for Cliff. One of his first jobs was as an analytics assistant at Wharton's Department of Finance. It was there that he learned to create computer programs that allowed him to analyze the market and test economic and financial theories.

In 1994, he completed his doctorate in finance at the University of Chicago. Young Cliff was mentored by a Nobel laureate Eugene Fame. In addition to him, Asnessa had a great influence on the formation of views Kenneth French. They developed the three-factor asset valuation model.

Asness' dissertation was about momentum trading. In his opinion, strategy combining investing value i Momentum, beat the average rate of return in the market. He later used the insights from the analysis in his Wall Street career.

Career at Goldman Sachs

He began his career on Wall Street Clif Asness in 1990, when he was 24 years old. This meant that he was working and completing his PhD at the same time. After graduating, he left academia to try his hand at Goldman Sachs. He got a job as a manager in GSM (Goldman Sachs Asset Management). This investment bank was just opening a test department dealing with the so-called “quantitative research”. Therefore, the bank needed "wise heads". Employees of this department were often called quanta. Cliff enlisted the help of two friends from the University of Chicago.

In his work, he dealt with the development of models that were to measure the risk of investments in currencies, bonds and shares. He also built models to simulate the current state of the economy and forecasts for the future. In his work, he used the lessons he received from his intellectual mentors: Fam and French.

Global Alpha will be established

In 1995, Asness convinced his superiors at Goldman Sachs to invest based on computer models. Initially, the bank agreed to invest $10 million as a test. Very quickly, the capital grew to $ 100 million. Then Goldman Sachs decided to open the fund to outside investors. This is how the Goldman Sachs Global Alpha Fund was born. It was one of the first “quant” funds on the market.

The fund itself tested investing HFT (High Frequency Trading). According to the assumptions of the fund, it was to use computer models to earn money in all market conditions. Global Alpha could invest in stocks, currencies, bonds, commodities and short selling. The most important thing was to use momentum, whether the market was going up or down. At the beginning, Global Alpha was managed by Asness and Mark Carhart. The two were identified by The Wall Street Journal as "investment gurus" .

In 1997, Cliff left GSAM to open his own hedge fund. After the departure of the originators, Global Alpha continued to grow. It peaked in popularity in 2007. Back then, the fund was managing $12 billion and had a great track record. However, after the 2008 crisis, the results were not satisfactory. As a result, the fund was closed in 2011.

Self-employed investing

AQR Capital Management logo

In 1998, Cliff Asness, David Kabiller, John Liew and Robert Krail opened Applied Quantitative Researchwhich is better known as AQR Capital Management. His goal was using your own thoughts on quant investing. The fund was supposed to earn regardless of market conditions. You could say it was supposed to be a better version of Global Alpha.

The fund began to spread its wings in 2000. In 2001, AQR Capital already had $750 million in assets under management. With the increasing profits, more funds were flowing into the fund. The beginning of the 2000st century is a dream market time. There were two strong trends in it. The first of them took place in the years 2003 - 2004. It was a period of slump on the market of technology companies. In turn, the years 2007 – XNUMX saw a great bull market on the market of raw materials and value companies.

AQR Capital had problems in 2007 and 2008. Assets under management fell from $39 billion to $17 billion over the two years. It was a special time. Therefore, funds based on past market behavior were not prepared. However, since 2009, the fund started earning again, and capital flowed in streams. In 2010, the fund's assets exceeded $38 billion. In 2019, assets under management exceeded $185 billion.

AQR strategies are based on such variables as VQM, i.e. value, quality and momentum. These factors are supposed to help you achieve a good return on capital. Sam Cliff Asness thinks he's not the best at "market timing". However, his strategy does not require such skill. His results are so good that it is not surprising that he is an ardent supporter of active investing.

Cliff Asness also collects awards

Cliff won 5 Bernstein Fabozzi/Jacobs Levy Awards from The Journal of Portfolio Management. He had awards in 2002, 2004, 2005, 2014 and 2015. The Financial Analysts Journal has twice awarded Cliff the Graham and Dodd Award. In addition, FAJ awarded the Graham and Dodd Excellence Award and the Graham and Dodd Readers' Choice Award. It is also worth mentioning that Cliff was awarded "The James R. Vertin Award" by the CFA, which recognizes research that is of particular value to professional investors.

Summary: a quant turned billionaire

Cliff Asness is a proponent of the so-called "factor investing". In a nutshell, it is an investment analysis in terms of many factors that affect the future rate of return. Among these factors, the key components are VQM (Value, Quality, Momentum). The most important thing is the right selection of assets. It is important that the market value of the assets is below their intrinsic value. Momentum is also important, i.e. buying companies when there is a good chance of an increase in the price. In short, this approach consists of, for example, buying overpriced companies that are of good quality and have the right momentum (e.g. starting to grow). Of course, factor investing also allows you to play short. In this case, you should look for overvalued assets with the potential to fall (according to momentum). With his story, Cliff showed that it is worth believing in your skills and constantly developing. His story also contradicts the "theory" that there are no rich intellectuals.