1 00:00:02,360 --> 00:00:06,680 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:06,880 --> 00:00:10,160 Speaker 2: AQR this year has been to double digit percentage returns 3 00:00:10,160 --> 00:00:13,000 Speaker 2: in key strategies, and that comes at a time when 4 00:00:13,080 --> 00:00:15,840 Speaker 2: many hedge funds have really been minting only marginal gains. 5 00:00:16,120 --> 00:00:19,280 Speaker 2: The gains have been in long short in multi strategy, 6 00:00:19,560 --> 00:00:24,439 Speaker 2: all with billionaire co founder clip Asda's trademark quantitative investing approach. 7 00:00:24,520 --> 00:00:27,600 Speaker 2: All of the forefront Asness joins us. Now, of course, 8 00:00:27,640 --> 00:00:30,479 Speaker 2: that is AQR Capital Management, founder, managing principle and chief 9 00:00:30,480 --> 00:00:31,360 Speaker 2: investment officer. 10 00:00:32,159 --> 00:00:32,800 Speaker 1: How do you do it? 11 00:00:32,880 --> 00:00:35,360 Speaker 2: How do you navigate this market at this moment? 12 00:00:35,479 --> 00:00:39,680 Speaker 1: Very simply, Well, first, we generally do what we always do. 13 00:00:40,680 --> 00:00:42,839 Speaker 1: We are quants, which means we spread our bets out 14 00:00:42,840 --> 00:00:46,440 Speaker 1: fairly wide. We divide them into categories, and you mentioned 15 00:00:46,440 --> 00:00:49,440 Speaker 1: a few of them, one major one and the single 16 00:00:49,440 --> 00:00:53,599 Speaker 1: best on the year is individual stock picking. Now for us, 17 00:00:53,640 --> 00:00:55,640 Speaker 1: as you well know, that doesn't mean, you know, we 18 00:00:55,760 --> 00:00:59,440 Speaker 1: visit one company, and we probably have about two thousand 19 00:00:59,520 --> 00:01:03,000 Speaker 1: longs in a two thousand shorts, balanced by country and 20 00:01:03,200 --> 00:01:07,160 Speaker 1: mostly been not entirely balanced by industry. That's been a 21 00:01:07,200 --> 00:01:10,760 Speaker 1: super strong start to the year. Basically every aspect of 22 00:01:10,800 --> 00:01:14,240 Speaker 1: what we do is working with the exception of famous 23 00:01:14,319 --> 00:01:17,600 Speaker 1: value Investing. I actually kind of love that because sometimes 24 00:01:17,600 --> 00:01:19,520 Speaker 1: people think of us too much as a value shop. 25 00:01:19,920 --> 00:01:24,440 Speaker 1: So having a really strong period, but things like are 26 00:01:24,440 --> 00:01:27,560 Speaker 1: the fundamentals getting better? Or is it a profitable company? 27 00:01:27,600 --> 00:01:29,760 Speaker 1: Are they buying back shares or issuing shares? Is it 28 00:01:29,840 --> 00:01:32,760 Speaker 1: high beta or low beta? We prefer low. Is the 29 00:01:32,800 --> 00:01:37,520 Speaker 1: price momentum there, including even some newer techniques mL based, 30 00:01:38,120 --> 00:01:41,920 Speaker 1: natural language processing, alternative data. It's been strong across the 31 00:01:41,920 --> 00:01:46,720 Speaker 1: board except my baby from nineteen ninety value investing, but 32 00:01:47,120 --> 00:01:49,200 Speaker 1: I try not to care. I just care about the total. 33 00:01:49,800 --> 00:01:51,960 Speaker 1: The other thing really strong for us on the year 34 00:01:52,440 --> 00:01:56,560 Speaker 1: is trend falling, and this one I'm going to brag 35 00:01:56,640 --> 00:01:59,080 Speaker 1: now because it's not been a good year for trend falling. 36 00:01:59,120 --> 00:02:03,200 Speaker 1: In general. Price trends in the major markets have been 37 00:02:03,200 --> 00:02:05,360 Speaker 1: a disappointment. There's been a lot of whipsaw. In particular, 38 00:02:05,480 --> 00:02:10,320 Speaker 1: April was very painful whipsaw. But over the last I 39 00:02:10,320 --> 00:02:14,959 Speaker 1: don't know, seven years, we've diversified our trend following process 40 00:02:15,240 --> 00:02:17,359 Speaker 1: to do many, many more markets, so it's more spread 41 00:02:17,360 --> 00:02:21,320 Speaker 1: out and importantly to give a very significant way not 42 00:02:21,400 --> 00:02:23,880 Speaker 1: just a price trend, but to a fundamental and economic 43 00:02:23,919 --> 00:02:25,440 Speaker 1: trend and that's been great this year. 44 00:02:25,560 --> 00:02:27,080 Speaker 2: Cliff, I feel like I could do this because I've 45 00:02:27,120 --> 00:02:29,359 Speaker 2: covered the tough times and the good times here and 46 00:02:29,480 --> 00:02:31,880 Speaker 2: right now for the good times for AQR. It's interesting 47 00:02:32,639 --> 00:02:37,040 Speaker 2: long short fund tracked by Bloomberg is down about one 48 00:02:37,080 --> 00:02:39,440 Speaker 2: percent on the year. You guys are up double digits 49 00:02:39,520 --> 00:02:42,160 Speaker 2: for long short in particular for the people who can't 50 00:02:42,200 --> 00:02:45,320 Speaker 2: spread their bets across thousands of firms and don't have 51 00:02:45,400 --> 00:02:47,360 Speaker 2: the machines at work to help. 52 00:02:47,520 --> 00:02:48,840 Speaker 1: What can they learn? 53 00:02:49,040 --> 00:02:51,720 Speaker 2: It looks like it's lower risk investments that are helping 54 00:02:51,720 --> 00:02:54,840 Speaker 2: you out. What are you finding that works well? 55 00:02:55,080 --> 00:02:57,959 Speaker 1: The general philosophy quants believe, and there's some difference is 56 00:02:58,040 --> 00:03:00,000 Speaker 1: some of the more modern again the mL they'll try 57 00:03:00,280 --> 00:03:04,040 Speaker 1: of data. This analogy doesn't work for. But the core 58 00:03:04,160 --> 00:03:08,560 Speaker 1: things that quantitative investors believe in are not so dissimilar 59 00:03:08,560 --> 00:03:11,200 Speaker 1: to what a classic Graham and Dodd investor would believe in. 60 00:03:11,240 --> 00:03:15,280 Speaker 1: We believe in profitable companies that are reasonable multiple where 61 00:03:15,280 --> 00:03:18,480 Speaker 1: the fundamentals are getting better, where they're buying back rather 62 00:03:18,520 --> 00:03:22,320 Speaker 1: than issuing shares, and all SQL and it's always all 63 00:03:22,200 --> 00:03:24,560 Speaker 1: all s equal because everything's done at once. We can 64 00:03:24,600 --> 00:03:27,120 Speaker 1: love a company with a high beta, but all sql 65 00:03:27,160 --> 00:03:31,919 Speaker 1: we prefer lower market risk. Obviously, as a quant I'm 66 00:03:32,000 --> 00:03:34,520 Speaker 1: not skilled at doing this, But if I were to 67 00:03:34,920 --> 00:03:38,160 Speaker 1: do more concentrated investments, I would use these things as 68 00:03:38,160 --> 00:03:40,360 Speaker 1: a screen. I'd use it as where do I fish? 69 00:03:40,400 --> 00:03:44,240 Speaker 1: I want companies that look like this. Then a traditional 70 00:03:44,280 --> 00:03:47,840 Speaker 1: manager's job is to get the specifics right. They can 71 00:03:47,880 --> 00:03:50,480 Speaker 1: do wonderful and do things we can't do if they 72 00:03:50,600 --> 00:03:53,360 Speaker 1: hit a home run in one specific stock, and they 73 00:03:53,400 --> 00:03:57,400 Speaker 1: can utterly get destroyed if they get it wrong. We're 74 00:03:57,400 --> 00:04:01,240 Speaker 1: betting on the statistical average of good investing working. They 75 00:04:01,240 --> 00:04:06,320 Speaker 1: are betting on applying good investing to specific situations, and 76 00:04:06,400 --> 00:04:09,360 Speaker 1: both can work and both cannot work, but they are. 77 00:04:09,480 --> 00:04:11,080 Speaker 1: In fact, It's a great question because I think they 78 00:04:11,080 --> 00:04:14,880 Speaker 1: are more similar than people sometimes realize in philosophy, if 79 00:04:14,920 --> 00:04:16,200 Speaker 1: not in execution. 80 00:04:16,520 --> 00:04:18,839 Speaker 3: By the way, it reminds me of you know, when 81 00:04:18,839 --> 00:04:22,039 Speaker 3: you say stock picking, I think of a random walk 82 00:04:22,040 --> 00:04:24,760 Speaker 3: down Wall Street. And when we were kids, the Wall 83 00:04:24,760 --> 00:04:27,279 Speaker 3: Street Journal did this experiment where they had staff members 84 00:04:27,320 --> 00:04:30,400 Speaker 3: through a dart at a board, and often that was 85 00:04:30,440 --> 00:04:33,120 Speaker 3: a better way to pick stocks than Wall Street analysts, 86 00:04:33,160 --> 00:04:36,320 Speaker 3: who were paid gazillions or at the time maybe hundreds. 87 00:04:36,000 --> 00:04:38,880 Speaker 1: Of thousands of dollars. You know, so yeah, and I'm 88 00:04:38,920 --> 00:04:43,560 Speaker 1: sure if they redid that study, it's still true. If 89 00:04:43,560 --> 00:04:45,359 Speaker 1: I want to get really geeky, I'll tell you that 90 00:04:45,560 --> 00:04:48,520 Speaker 1: throwing darts gets you a big small cap microcap bias 91 00:04:48,520 --> 00:04:50,400 Speaker 1: because there's a lot more of them. But let's the 92 00:04:50,520 --> 00:04:57,680 Speaker 1: principle is correct. Active management picking specific stocks, be it 93 00:04:57,760 --> 00:05:01,240 Speaker 1: a concentrated manager or a very diverse did long short 94 00:05:01,279 --> 00:05:05,359 Speaker 1: manager's fully hedged is inherently an arrogant act. I know 95 00:05:05,400 --> 00:05:07,839 Speaker 1: anyone who's followed me will be shocked that I will 96 00:05:07,839 --> 00:05:12,480 Speaker 1: do an arrogant act. But the average can't win. Jack 97 00:05:12,520 --> 00:05:15,719 Speaker 1: Bogel was right, you add up everyone. It adds up 98 00:05:15,760 --> 00:05:18,960 Speaker 1: to the market. Some people underperform, some outperform, and the 99 00:05:19,040 --> 00:05:22,960 Speaker 1: average after fees and costs underperforms. So no one can 100 00:05:22,960 --> 00:05:25,560 Speaker 1: get around from that. With that, we need active management 101 00:05:25,560 --> 00:05:27,160 Speaker 1: in the world. We can't have a world of one 102 00:05:27,200 --> 00:05:31,000 Speaker 1: hundred percent indexing. That's a really weird world. What happens 103 00:05:31,000 --> 00:05:34,400 Speaker 1: when nobody is looking at prices and good active managers 104 00:05:34,400 --> 00:05:37,680 Speaker 1: I think can do well. But to believe you're one 105 00:05:37,720 --> 00:05:41,400 Speaker 1: of the good ones is an inherently arrogant act. So 106 00:05:41,440 --> 00:05:44,680 Speaker 1: I don't disagree. I certainly don't disagree with Burton at all. 107 00:05:45,600 --> 00:05:47,800 Speaker 1: I do think for someone who doesn't think they have 108 00:05:47,839 --> 00:05:50,760 Speaker 1: an edge or can find someone with an edge that 109 00:05:51,839 --> 00:05:53,880 Speaker 1: unfortunately he's passed. But I used to love to say, 110 00:05:54,720 --> 00:05:58,120 Speaker 1: my friend Jack Bogel is not a bad alternative, right. 111 00:05:58,000 --> 00:06:00,279 Speaker 4: Right, And to that point, I'm speaking to David with 112 00:06:00,360 --> 00:06:02,839 Speaker 4: the co founder of Dimensional at twelve thirty and I 113 00:06:02,880 --> 00:06:05,800 Speaker 4: believe we'll have a pretty similar conversation about that. But 114 00:06:06,040 --> 00:06:08,359 Speaker 4: I want to talk about your market neutral strategy, your 115 00:06:08,440 --> 00:06:10,719 Speaker 4: market neutral fund as well, because I was. 116 00:06:10,720 --> 00:06:11,799 Speaker 1: Playing around with some charts. 117 00:06:11,800 --> 00:06:15,239 Speaker 4: It's also up about fifteen percent on a total return 118 00:06:15,440 --> 00:06:18,320 Speaker 4: basis this year. It's outperforming the S and P five 119 00:06:18,400 --> 00:06:20,279 Speaker 4: hundred over the last five years, but a lot of 120 00:06:20,320 --> 00:06:24,200 Speaker 4: that outperformance has come specifically from the past year. 121 00:06:24,440 --> 00:06:25,520 Speaker 1: We were just speaking. 122 00:06:25,160 --> 00:06:27,760 Speaker 4: With Gargey Chowdery over at Blackrock and she said that 123 00:06:27,880 --> 00:06:30,919 Speaker 4: right now she would be looking at market neutral strategies. 124 00:06:31,000 --> 00:06:32,320 Speaker 1: So why is. 125 00:06:32,279 --> 00:06:35,200 Speaker 4: Market neutral working so well in this specific environment. 126 00:06:35,720 --> 00:06:38,080 Speaker 1: I'm going to give you a very unsatisfying answer. Oh no, 127 00:06:38,160 --> 00:06:41,880 Speaker 1: of course, we bet on these multiple themes, and I'm 128 00:06:41,880 --> 00:06:43,679 Speaker 1: only giving you a few of them. There are hundreds 129 00:06:43,680 --> 00:06:46,400 Speaker 1: of factors in our model, and one thing quants are 130 00:06:46,440 --> 00:06:50,440 Speaker 1: really bad at is telling a story about what. In fact, 131 00:06:50,480 --> 00:06:53,680 Speaker 1: when we can tell a story, it's usually bad news. 132 00:06:54,160 --> 00:06:56,760 Speaker 1: It's all value has gone so crazy, it's dominating what 133 00:06:56,760 --> 00:06:58,200 Speaker 1: we do and we have to stick with it. Oh, 134 00:06:58,200 --> 00:06:59,919 Speaker 1: and it's come back and the round trip has been go. 135 00:07:00,000 --> 00:07:04,680 Speaker 1: But there's a story. This year, there's been a tremendous 136 00:07:04,880 --> 00:07:09,360 Speaker 1: return x value to what we would call basic rational investing, 137 00:07:10,200 --> 00:07:12,360 Speaker 1: and I think you see that with maybe Europe out 138 00:07:12,400 --> 00:07:16,120 Speaker 1: performing the US, and that's one place. Value probably has 139 00:07:16,120 --> 00:07:21,480 Speaker 1: helped because Europe has been cheaper, but the market has 140 00:07:21,520 --> 00:07:26,200 Speaker 1: rewarded good companies that are getting better that aren't too risky. 141 00:07:26,480 --> 00:07:30,280 Speaker 1: We're not in a bubble period, and basically a bubble 142 00:07:30,320 --> 00:07:35,320 Speaker 1: period is the only period I fear. Doesn't mean we 143 00:07:35,360 --> 00:07:37,280 Speaker 1: won't do poorly at other times, I think we make 144 00:07:37,320 --> 00:07:38,880 Speaker 1: money much more of it than we don't, but we can. 145 00:07:39,200 --> 00:07:41,520 Speaker 1: We can get it wrong in any environment, but in 146 00:07:41,560 --> 00:07:46,280 Speaker 1: a bubble both valuation strategies and fundamentals get thrown out 147 00:07:46,840 --> 00:07:50,880 Speaker 1: the window. And that is very hard in those times 148 00:07:51,760 --> 00:07:54,880 Speaker 1: sticking with your process and having the wherewithal to see 149 00:07:54,880 --> 00:07:56,520 Speaker 1: it through I think can make you a lot of 150 00:07:56,520 --> 00:07:59,120 Speaker 1: money round trip, including the tough times. You know, those 151 00:07:59,120 --> 00:07:59,880 Speaker 1: are the tough ones. 152 00:08:00,000 --> 00:08:02,520 Speaker 2: Speaking of tough times, it looks like a lot of 153 00:08:02,560 --> 00:08:03,800 Speaker 2: people are still keeping. 154 00:08:03,600 --> 00:08:05,320 Speaker 1: Money on the sidelines for a rainy day. 155 00:08:05,320 --> 00:08:07,680 Speaker 2: If you look at what money market fund assets have 156 00:08:07,720 --> 00:08:09,080 Speaker 2: been doing, they've been drawn down. 157 00:08:08,960 --> 00:08:11,679 Speaker 1: A little bit, but not buy very much. 158 00:08:11,960 --> 00:08:14,320 Speaker 2: They've really climbed. What do you tell people who are 159 00:08:14,320 --> 00:08:16,840 Speaker 2: sitting in cash and looking for the right buying opportunity 160 00:08:16,920 --> 00:08:17,280 Speaker 2: right now? 161 00:08:17,400 --> 00:08:19,040 Speaker 1: First, you know, a pet peeve of mine is the 162 00:08:19,040 --> 00:08:21,520 Speaker 1: phrase money's on the sidelines, cash on the sidelines. 163 00:08:21,600 --> 00:08:23,760 Speaker 3: Yeah, I've been hearing it for twenty five years. 164 00:08:23,480 --> 00:08:26,120 Speaker 1: Cliff Under the moment, everyone says it, and what you 165 00:08:26,200 --> 00:08:32,080 Speaker 1: generally mean is people have embarrassed tin to them. But 166 00:08:32,160 --> 00:08:34,160 Speaker 1: what I always do, this is really geeky, But if 167 00:08:34,160 --> 00:08:36,280 Speaker 1: you try to get to the sidelines and sell your stocks, 168 00:08:36,360 --> 00:08:38,360 Speaker 1: you got to sell them to someone who just left 169 00:08:38,880 --> 00:08:41,400 Speaker 1: the sidelines. With that said, I think a lot of 170 00:08:41,440 --> 00:08:45,480 Speaker 1: managers are cautious and a lot of individual investors may 171 00:08:45,480 --> 00:08:49,720 Speaker 1: be less so. On the individual side, our view on 172 00:08:49,960 --> 00:08:53,640 Speaker 1: timing the market, I co authored a paper with one 173 00:08:53,679 --> 00:08:56,520 Speaker 1: of my partners, Anti Illminent. I'm having a good day 174 00:08:56,520 --> 00:08:58,760 Speaker 1: because I nailed this name. I've only known Anti for 175 00:08:58,800 --> 00:09:01,480 Speaker 1: almost forty years, but it's still you know, if you're 176 00:09:01,480 --> 00:09:05,080 Speaker 1: having a tough day, it's finished. It's a mouthful. But 177 00:09:05,160 --> 00:09:09,400 Speaker 1: we wrote a paper an institutional investor called Sin a 178 00:09:09,480 --> 00:09:13,240 Speaker 1: Little about timing the market, and it's a subtlety. You know, 179 00:09:13,280 --> 00:09:15,240 Speaker 1: it's easy to tell people never do this. You're a 180 00:09:15,240 --> 00:09:17,480 Speaker 1: disaster if you do this, And it's easy to tell 181 00:09:17,480 --> 00:09:20,280 Speaker 1: people even if it doesn't work out, get out now. 182 00:09:21,200 --> 00:09:24,680 Speaker 1: But Sin a Little says market timing is pretty freaking hard. 183 00:09:25,600 --> 00:09:29,000 Speaker 1: Combinations of basic things like trend following and valuation we 184 00:09:29,040 --> 00:09:32,000 Speaker 1: think do add some value long term. When the market 185 00:09:32,040 --> 00:09:34,800 Speaker 1: looks cheap and has been doing well lately on price 186 00:09:34,840 --> 00:09:38,679 Speaker 1: and fundamentals, we do think it's you can overweight somewhat 187 00:09:38,679 --> 00:09:41,880 Speaker 1: and vice versa. But the risk adjustin returns on that 188 00:09:41,960 --> 00:09:46,160 Speaker 1: trade are still low, so I think on net we're 189 00:09:46,160 --> 00:09:50,240 Speaker 1: probably close to neutral, maybe a little negative. Valuations is 190 00:09:50,280 --> 00:09:53,840 Speaker 1: pretty bad, particularly for US docs. The trend has gotten weaker, 191 00:09:53,880 --> 00:09:55,640 Speaker 1: but it's still because we look it up to about 192 00:09:55,679 --> 00:09:58,520 Speaker 1: a year horizon, still pretty decent. They're balancing out to 193 00:09:58,559 --> 00:10:03,120 Speaker 1: a pretty wimpy view. But I encourage wimpiness on this. 194 00:10:03,760 --> 00:10:06,760 Speaker 1: I don't know if there's anyone there who can do it, 195 00:10:06,880 --> 00:10:09,760 Speaker 1: but I think the universe of people who can can 196 00:10:10,040 --> 00:10:12,960 Speaker 1: can add a lot of value from really pure timing 197 00:10:13,520 --> 00:10:17,200 Speaker 1: is exceptionally small. One element of hypocrisy. What we do 198 00:10:17,280 --> 00:10:21,920 Speaker 1: in trend following takes net long and short positions, so 199 00:10:21,960 --> 00:10:24,719 Speaker 1: that will average flat the market, so that in a 200 00:10:24,800 --> 00:10:28,360 Speaker 1: very long term sense it is not timing but short term. 201 00:10:28,400 --> 00:10:30,600 Speaker 1: Of course, if you're doing trend following, you have lungs 202 00:10:31,200 --> 00:10:33,240 Speaker 1: and shorts. But even there we spread the bets pretty 203 00:10:33,240 --> 00:10:33,800 Speaker 1: far and wide. 204 00:10:33,920 --> 00:10:36,640 Speaker 4: And Cliff, we were having this conversation last week on 205 00:10:36,679 --> 00:10:39,680 Speaker 4: my podcast with Matt Levine Money Stuff about this push 206 00:10:39,760 --> 00:10:43,640 Speaker 4: really to put private assets in the hands of retail investors, 207 00:10:43,679 --> 00:10:47,040 Speaker 4: either through ETFs or interval funds. The list goes on. 208 00:10:47,280 --> 00:10:48,800 Speaker 4: You said that you were going to head yourself, and 209 00:10:48,840 --> 00:10:51,800 Speaker 4: then you said it's a terrible idea. And I'm hoping 210 00:10:51,800 --> 00:10:53,880 Speaker 4: you can just expand on that a little bit. 211 00:10:53,960 --> 00:10:56,640 Speaker 1: Why exactly what me to me is the whole thing's 212 00:10:56,640 --> 00:10:57,480 Speaker 1: not going to be fair. 213 00:10:57,720 --> 00:10:58,559 Speaker 4: Was that a good setup? 214 00:10:58,600 --> 00:11:01,440 Speaker 1: I said that last week? Yeah, I don't. My opinion 215 00:11:01,440 --> 00:11:05,320 Speaker 1: has completely changed. Tell us all right, I have some 216 00:11:05,360 --> 00:11:09,200 Speaker 1: cynicism about where we are in the private world. I've 217 00:11:09,240 --> 00:11:13,319 Speaker 1: written about this. I don't think they're necessarily bad investments 218 00:11:13,320 --> 00:11:15,440 Speaker 1: by any means. They may make a lot of money. 219 00:11:15,640 --> 00:11:20,000 Speaker 1: My cynicism is mainly about people understanding the risks. You know, 220 00:11:20,760 --> 00:11:23,200 Speaker 1: we try to create assets that are very low correlation 221 00:11:23,280 --> 00:11:27,760 Speaker 1: of markets by shorting as much as we're long. I 222 00:11:27,800 --> 00:11:29,440 Speaker 1: think we make money long term. I think we've made 223 00:11:29,440 --> 00:11:30,960 Speaker 1: a lot of money long term. But that doesn't make 224 00:11:31,000 --> 00:11:33,600 Speaker 1: a great investment. You have to do it well. But 225 00:11:33,720 --> 00:11:36,800 Speaker 1: it does really hedge. It creates something that's not very correlated. 226 00:11:38,160 --> 00:11:42,960 Speaker 1: Privates are simply long only equities, usually with some leverage applied, 227 00:11:43,280 --> 00:11:46,480 Speaker 1: and they look uncorrelated because they just don't tell you 228 00:11:46,520 --> 00:11:49,760 Speaker 1: the price is very often, and they can. They could 229 00:11:49,800 --> 00:11:52,360 Speaker 1: tell you every day, well, market went up, and we 230 00:11:52,400 --> 00:11:54,559 Speaker 1: know what our multiples are to the market, and it's 231 00:11:54,600 --> 00:11:58,040 Speaker 1: worth this today. So I don't think they're a true 232 00:11:58,080 --> 00:12:01,400 Speaker 1: alternative frankly in the sense an alternative way to buy 233 00:12:01,480 --> 00:12:06,760 Speaker 1: long only equities, and as such, they've gotten extremely popular, 234 00:12:07,040 --> 00:12:09,800 Speaker 1: partly because many of them have done very well, but 235 00:12:09,840 --> 00:12:12,200 Speaker 1: partly because we've been in a massive equity bull market 236 00:12:12,240 --> 00:12:18,800 Speaker 1: forever and selling equity exposure with reported risks that's lower, 237 00:12:18,960 --> 00:12:21,319 Speaker 1: not real risk, but reported risk turns out to be 238 00:12:21,360 --> 00:12:24,880 Speaker 1: a great business model. So it does feel like a 239 00:12:24,920 --> 00:12:29,240 Speaker 1: crowded place. It feels like not having to mark to market. 240 00:12:29,600 --> 00:12:32,720 Speaker 1: Being a liquid used to be when David Swinson pioneered 241 00:12:32,840 --> 00:12:35,400 Speaker 1: at Yale, used to be a bug that you got 242 00:12:35,400 --> 00:12:37,880 Speaker 1: paid for. Bearing a bug is you don't want this, 243 00:12:38,000 --> 00:12:40,600 Speaker 1: You don't want a liquid, so you need extra return 244 00:12:41,160 --> 00:12:44,520 Speaker 1: to compensate you. And he was brilliant at monetizing that. Well, 245 00:12:44,600 --> 00:12:47,360 Speaker 1: if it's a feature now, because it simply makes investments 246 00:12:47,400 --> 00:12:49,400 Speaker 1: easier to live with because you don't have to look. 247 00:12:50,160 --> 00:12:53,600 Speaker 1: You pay for a feature through lower returns. So they'll 248 00:12:53,640 --> 00:12:55,480 Speaker 1: be winners, they'll be great firms. I think some of 249 00:12:55,480 --> 00:12:58,520 Speaker 1: the firms out there, I'm less specific. You could no, 250 00:12:58,679 --> 00:13:00,480 Speaker 1: I'm not going to go there, but there are some 251 00:13:00,559 --> 00:13:03,719 Speaker 1: I really think we'll navigate this well. Yeah, but as 252 00:13:03,760 --> 00:13:07,200 Speaker 1: an industry, I think people think they're way too low risk, 253 00:13:07,480 --> 00:13:11,480 Speaker 1: they're way too popular, and they may have market or 254 00:13:11,520 --> 00:13:15,520 Speaker 1: sub market returns as what was once a bug is 255 00:13:15,559 --> 00:13:17,600 Speaker 1: a feature that you pay for in terms of return. 256 00:13:18,040 --> 00:13:21,240 Speaker 1: So with all that said, hey, if you have those 257 00:13:21,240 --> 00:13:22,800 Speaker 1: concerns and You don't have to agree with me, but 258 00:13:22,800 --> 00:13:25,400 Speaker 1: if you share those concerns, saying, hey, you know what 259 00:13:25,480 --> 00:13:28,640 Speaker 1: we should do? We have all these things, you know, 260 00:13:28,640 --> 00:13:32,199 Speaker 1: who would buy this? Now, retail doesn't always work out 261 00:13:32,200 --> 00:13:32,720 Speaker 1: for retail. 262 00:13:33,120 --> 00:13:35,920 Speaker 4: Well, one of the pushbacks here because private assets. 263 00:13:35,920 --> 00:13:36,920 Speaker 1: Of course, we're also talking. 264 00:13:36,720 --> 00:13:39,800 Speaker 4: About private companies, and there's the argument out there is 265 00:13:39,840 --> 00:13:43,080 Speaker 4: that companies are staying private much longer, and some of 266 00:13:43,120 --> 00:13:47,319 Speaker 4: the highest growth and most exciting companies I'm thinking Stripes, SpaceX, 267 00:13:47,400 --> 00:13:50,319 Speaker 4: open Ai, the list goes on, are in the private markets, 268 00:13:50,360 --> 00:13:54,160 Speaker 4: and perhaps retail should have access to that innovation. I 269 00:13:54,240 --> 00:13:55,760 Speaker 4: wonder if that holds water with you. 270 00:13:57,000 --> 00:13:59,439 Speaker 1: Directionally, I buy the argument there has been a shift 271 00:13:59,480 --> 00:14:04,400 Speaker 1: to more private. It doesn't make them necessarily fairly priced investments. 272 00:14:05,240 --> 00:14:07,920 Speaker 1: You know, the private world has changed. It used to 273 00:14:07,960 --> 00:14:10,559 Speaker 1: have more of a value flavor. The old LBO of 274 00:14:10,679 --> 00:14:13,760 Speaker 1: this company is too cheap. It has somewhat, at least 275 00:14:14,440 --> 00:14:17,600 Speaker 1: to my casual observation, switched to a little bit more 276 00:14:17,600 --> 00:14:20,800 Speaker 1: of a growth investment, which also makes it probably a 277 00:14:20,880 --> 00:14:24,480 Speaker 1: riskier investment. And it's a riskier investment that's still not 278 00:14:24,600 --> 00:14:27,920 Speaker 1: reporting its daily risk. So I'll give you part of 279 00:14:27,960 --> 00:14:31,640 Speaker 1: that argument. I wouldn't say private should not be part 280 00:14:31,640 --> 00:14:34,320 Speaker 1: of a portfolio. I sit on quite a few investment 281 00:14:34,360 --> 00:14:37,120 Speaker 1: committees over my time, and I never stand up and 282 00:14:38,160 --> 00:14:39,760 Speaker 1: bang my fist and say we have to get out 283 00:14:39,800 --> 00:14:42,520 Speaker 1: of these. But I do say we should be treating 284 00:14:42,560 --> 00:14:46,560 Speaker 1: them as risky or more risky than the stock market. 285 00:14:47,160 --> 00:14:49,760 Speaker 1: And that is not always the case. Sometimes you see, 286 00:14:50,160 --> 00:14:53,640 Speaker 1: I'll be geeky for a second, like I'm ever not geeking. Yeah, 287 00:14:53,840 --> 00:14:57,880 Speaker 1: if markets have a fifteen six to twenty percent annual volatility, 288 00:14:59,040 --> 00:15:01,760 Speaker 1: you'll see people put out graphics where it's like privates 289 00:15:01,880 --> 00:15:05,200 Speaker 1: four percent, And yeah, those are the reported numbers, but 290 00:15:05,240 --> 00:15:08,200 Speaker 1: I promise you the actual number is thirty two percent. 291 00:15:08,560 --> 00:15:11,560 Speaker 1: So if I worry about some institutions not getting that, 292 00:15:11,760 --> 00:15:15,200 Speaker 1: I worry more about retail not getting it. Shanali will 293 00:15:15,240 --> 00:15:18,840 Speaker 1: explain that to me after the thirty five is bigger 294 00:15:18,840 --> 00:15:19,480 Speaker 1: than fifteen. 295 00:15:19,560 --> 00:15:23,160 Speaker 3: No, No, I mean if the numbers reporters are four. Anyway, 296 00:15:23,280 --> 00:15:25,480 Speaker 3: I have a different question, a different kind of line 297 00:15:25,480 --> 00:15:29,280 Speaker 3: of questioning here, which is I think AQR is one 298 00:15:29,320 --> 00:15:32,840 Speaker 3: of the most interesting from an academic standpoint firms out there. 299 00:15:33,000 --> 00:15:35,200 Speaker 3: I mean, I love have always loved the quant Jim 300 00:15:35,200 --> 00:15:38,000 Speaker 3: Simons and everybody who's doing your work, because you're so 301 00:15:38,080 --> 00:15:41,720 Speaker 3: closely involved with universities, and I think of the University 302 00:15:41,720 --> 00:15:45,120 Speaker 3: of Chicago when I think of AQR, and I wonder 303 00:15:45,160 --> 00:15:49,560 Speaker 3: what you make of this push to reduce foreign students 304 00:15:49,760 --> 00:15:53,600 Speaker 3: studying here in America because President Trump recently study things 305 00:15:53,600 --> 00:15:56,400 Speaker 3: Harvard should only have fifteen percent foreign students, they have 306 00:15:56,440 --> 00:15:58,680 Speaker 3: like twenty seven percent. I looked up Universe Chicago twenty 307 00:15:58,720 --> 00:16:02,120 Speaker 3: four percent. And you work so closely with these students 308 00:16:02,120 --> 00:16:03,760 Speaker 3: and professors, So what does it mean to you. 309 00:16:04,080 --> 00:16:07,880 Speaker 1: Well, you know, I'm going to try to stay as 310 00:16:07,880 --> 00:16:11,800 Speaker 1: a political as possible because I want to survive the week. Yeah, 311 00:16:12,440 --> 00:16:16,200 Speaker 1: I will speak purely as a self serving consumer of 312 00:16:16,280 --> 00:16:22,160 Speaker 1: great researchers. We have found the great students at great 313 00:16:22,200 --> 00:16:25,640 Speaker 1: PhD programs and even at great NBA programs to be 314 00:16:25,680 --> 00:16:28,800 Speaker 1: a tremendous resource for AQR. Not all of them by 315 00:16:28,800 --> 00:16:33,320 Speaker 1: any means, but a fairly decent number have been international students. 316 00:16:33,640 --> 00:16:36,520 Speaker 1: And as a business person, I'm certainly concerned about that 317 00:16:36,880 --> 00:16:40,480 Speaker 1: drying up. It's been a real talent pool that I 318 00:16:40,520 --> 00:16:43,400 Speaker 1: think makes them better off and makes us better off. 319 00:16:43,440 --> 00:16:46,000 Speaker 1: I don't think they're necessarily they're only taking American jobs 320 00:16:46,000 --> 00:16:48,720 Speaker 1: if we find them better than the Americans, and we 321 00:16:48,720 --> 00:16:51,320 Speaker 1: don't always buy any means there are a lot of great Americans, 322 00:16:51,360 --> 00:16:54,640 Speaker 1: but reducing the talent pool for us is a negative, 323 00:16:54,640 --> 00:16:57,360 Speaker 1: and I imagine we can't be the only one, so 324 00:16:57,480 --> 00:17:00,160 Speaker 1: I think it is somewhat anti growth to reduce the 325 00:17:00,200 --> 00:17:02,960 Speaker 1: talent pool. A lot of some of these people go 326 00:17:03,000 --> 00:17:04,560 Speaker 1: back to their home country, but a lot of state 327 00:17:05,080 --> 00:17:08,439 Speaker 1: in the United States. So there are aspects of what 328 00:17:08,520 --> 00:17:10,639 Speaker 1: President Trump is doing. There's some messed up things in 329 00:17:10,680 --> 00:17:12,840 Speaker 1: the university world, and he doesn't have a whole lot 330 00:17:12,880 --> 00:17:15,280 Speaker 1: of levers, so maybe he's using what he thinks he 331 00:17:15,320 --> 00:17:17,760 Speaker 1: needs to use. But this I don't like.