Asness Attracts $360 Million as Liquid Alternative Funds Hold Up

Clifford Asness
Clifford Asness, managing and founding principal of AQR Capital Management. Photographer: Jonathan Fickies/Bloomberg

As U.S. stocks suffered their worst month in more than three years in August, Clifford Asness’s managed futures fund was able to profit. Investors are taking notice.

The $9.12 billion AQR Managed Futures Strategy Fund pulled in an estimated $360 million in net subscriptions last month through Aug. 28 as bets against commodities and currencies paid off. That’s the most among 366 U.S. liquid alternatives funds that provide daily updates, according to data compiled by Bloomberg.

Asness’s fund is among a growing number of hedge-fund-like mutual funds that sprang to popularity after the 2008 financial crisis, which sent investors searching for alternatives to traditional stocks and bonds. The funds, typically designed to provide protection during a market decline, have attracted scrutiny from regulators, who are considering new rules to ensure mutual funds’ migration into complex strategies doesn’t pose risks to the financial system.

“This isn’t a period that justifies whether alts works, but will sort out the ones that are able to deliver versus ones that are making big promises,” said Jason Kephart, an alternative funds analyst at Morningstar Inc. “I expect, after this volatility comes down, to see a lot of performance chasing and performance ditching.”

Assets in such funds have more than doubled from 2012 to $175 billion as of April, Bloomberg’s data show. Mary Jo White, chairman of the U.S. Securities and Exchange Commission, in December announced plans for a sweeping set of rules for mutual funds, saying the agency needed a more comprehensive approach to address risks posed by “the increasingly diverse nature” of fund holdings.

Currency Wagers

Liquid alts, which are used by institutions as well as individuals, generally held up during the selloff that wiped out more than $5 trillion in global stock value in the wake of China’s surprise currency devaluation. While the MSCI AWI Index of global stocks lost 6.4 percent last month as of Aug. 28, liquid alternatives funds with more than $100 million declined by an average of 1.6 percent, according to data compiled by Bloomberg.

The AQR fund rose 1.4 percent in the same period, as the Greenwich, Connecticut-based firm turned more bearish on stocks before the tumult struck. Wagers against the Norwegian krone and New Zealand dollar provided a boost, and Asness’s team benefited from shorting equity markets in the U.S., the U.K. and Hong Kong. As of Aug. 25, at the height of the market turmoil before a rebound in oil and equities, the fund was up 4.1 percent for the month while global stocks were down 11 percent.

Crude’s Plunge

Ashley Bowles, a spokeswoman at Edelman, declined to comment on the fund’s performance on behalf of AQR.

Managed futures and multistrategy funds attracted the most new cash while equity hedge strategies suffered withdrawals. The $1.28 billion Wasatch Long/Short Fund and the $2.79 billion Gotham Absolute Return Fund both had redemptions for the month of more than $200 million as of last week, according to Bloomberg’s estimates.

Managed futures funds, which use mathematical models to wager on rising and falling assets, were among the most resilient liquid alternative strategies through the recent turmoil. Trends including declining oil and a strengthening U.S. dollar have helped managed futures providers. Crude oil plunged below $40 a barrel early last week, before rebounding to $49.20 on Monday, as concern over slowing demand in China fueled volatility.

Mainstay Marketfield

“We have seen recently an amplification of some of the trends that have been occurring this year,” said Alexander Healy, director of strategic research for AlphaSimplex Group, which runs Natixis’s ASG Managed Futures Strategy Fund.

The $2.42 billion fund lost 1.6 percent last month through Aug. 28.

Among long-short stock mutual funds, which can bet on and against equities, returns were mixed. The $4.45 billion MainStay Marketfield Fund dipped 0.2 percent last month through Aug. 28, while Natixis’s $111 million ASG Tactical U.S. Market Fund declined 6.1 percent.

“Some of these strategies have higher or lower levels of market exposure,” said Jason Schwarz, president of Wilshire Funds Management.

MainStay Marketfield Fund, which has struggled with performance and declining assets since 2014, made some money during the market rout as it entered the week of Aug. 17 with a net short position on equities.

‘Quite Cautious’

“We were quite cautious most of this year and got more and more cautious in July and August,” co-manager Michael Aronstein said.

Natixis’s long-short strategy was 100 percent exposed to the stock market heading into the plunge, said Healy, the research director. The firm started scaling back in the first half of the year from 130 percent after its saw risks of contagion amid losses in the U.S. and international markets. Last week the fund, which can reduce its market exposure to as low as zero, cut it to 75 percent to remain modestly defensive.

“We can’t tell exactly when the market will reach a breaking point or when we might hit another crisis so we are adapting gradually,” Healy said.

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