AQR Hedge Fund Fell Almost 15% Through Mid-February

Date: Friday, February 22, 2008
Author: Jenny Strasburg, B

AQR Capital Management LLC's largest hedge fund fell almost 15 percent this year through Feb. 15 as market swings tripped up computer models the managers use to make trades, two people with knowledge of the matter said.

The assets of AQR's Absolute Return fund dropped to $2.9 billion last month from $4 billion in the fourth quarter, said the people, who declined to be identified because the Greenwich, Connecticut-based firm doesn't publicly disclose the data. AQR's smaller Asset Allocation fund lost at least 16 percent of value.

Quantitative managers who rely on computers to make trades have struggled as global equity markets declined. Assets managed by AQR, co-founded in 1998 by former Goldman Sachs Group Inc. managing director Clifford Asness, slipped more than 20 percent to $8.6 billion in the past six months because of investment losses and client redemptions.

``Quants traditionally do well when the market moves in broad strokes, and during choppy markets, their practices suffer,'' said Geoffrey Bobroff, an independent investment consultant in East Greenwich, Rhode Island, who isn't affiliated with AQR.

AQR spokesman Brian Maddox declined to comment.

Quant funds run by AQR, Goldman and JPMorgan Chase & Co.'s Highbridge Capital Management LLC stumbled in July and August when credit markets seized up and managers rushed to raise cash by selling stocks. Goldman and Highbridge are based in New York.

January Slide

Losses accelerated in January as managers who concentrate on picking stocks lost an average of 4.1 percent, the biggest monthly decline in more than seven years, according to data compiled by Chicago-based Hedge Fund Research Inc. The Standard & Poor's 500 Index closed up or down more than 1 percent in 14 of 21 trading days in January. That occurred just once in January 2007.

AQR offers two versions of the Absolute Return fund. The first, managed to limit swings in value, lost 16 percent through Feb. 15. The second, which takes more risk, fell 25 percent.

The company, which is partially owned by Affiliated Managers Group Inc. of Beverly, Massachusetts, manages about $35 billion in assets across all of its funds, according to its Web site. That includes funds that bet solely on rising stock prices. The firm, which Asness started with David Kabiller, Robert Krail and John Liew, considered going public last year, the Financial Times reported.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.

To contact the reporter on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net