Bess Levin of Dealbreaker has
the letter
that AQR principal Cliff Asness sent to investors worried about losses in his
quant-based hedge funds. It seems that the losses are significant, and that
AQR is moving money out of that strategy – but at the same time moving
money in to that strategy. See if it makes any more sense to you:
In the face of this dramatically increased risk profile, we have temporarily
been managing a reduction of our notional exposure to these strategies in
the several hedge funds where they are utilized. Despite this reduction, we
strongly view that the exit of many others from this style of stock picking
represents a striking opportunity for future gains, which we fully intend
to capitalize on for our clients. To that end, we’ve already seen increased
client demand for our aggressive market-neutral equity fund.
Why is it that hedge fund managers seem incapable of using the word "selling"
when they can talk about "a reduction of our notional exposure" instead?
And is there any meaning at all to the word "notional" in that sentence?
In any event, with the Goldman
liquidity injection, it’s clear that AQR isn’t alone in this "lightning
won’t strike twice" play.