They're doing badly, and have done layoffs recently. The core of many of their strategies is low-cost implementations of quant factors. The quant value factor has been a disaster for a few years now, and that's really at the root of their performance issues. If quant value improves from here, they'll be fine. If it doesn't, they'll have long-term issues.

 

I'm quite sceptical about them. I don't know anyone at AQR in particular, but through my network I know some people working at CTAs and quant funds which mostly run highly commoditised "smart beta" strats and it seems like all they do is maintain some very basic strategies that everyone knows and for which the Sharpe makes it questionable if this is not just noise. Job prospects are also not great because to be honest nobody really needs a quant with 7 years experience in slow trend following and systematic carry... Would try to go to a place where people have some Real alpha. Maybe AQR has teams working on more advanced strategies but I have my doubts...

 

I will get a lot of MS for this but whatever - AQR's business model is essentially reputation/labor arbitrage. They hire a lot of kids out of top tier universities with PhDs or Ivy League bachelor degrees and then advertise their root in academia etc to gullible allocators. In reality, like the poster above said, they do the same smart beta stuff that DFA or JPMAM can do for 1/10th of the price. Sure, they have a sweet gig that pays well with strong name brand for someone out of undergrad, but don't fool yourself and think you are working for a elite quant firm adding much value for your clients.

 
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I would generally echo this but with less negativity. I know a lot of people at AQR. I don't think they're trying to "fool" anyone. They do really believe in their academically minded approach. The fees for most of their products are quite low. AQR also has dozens of strategies. Their bread and butter is and was factor based equity investing (much of that aum is in long only strategies and so will be lower fee).

They hire lots of smart people to do research but are generally quite conservative in making any big changes to their strategies. This is something they pride themselves in as they don't believe they are in the business of creating black box strategies. The point of the researchers is honestly more to continually test their hypothesis for whether the strategies will deliver outperformance in the long term.

I would say it's a great place to learn and everyone in the industry would respect your experience there. You would likely not have any trouble getting interviews at citadel, two sigma, etc. but it is probably not a place where you'd want to spend your entire career if you're looking to become a PM to make 7 figures or whatever. My friends who are VPs there really like it, they get to do interesting work, pretty relaxed hours, etc. It depends what you're looking for.

The fact that AQR strategies are "low sharpe" aren't really telling a secret. They're supposed to be somewhat commoditized straight forward strategies

 
DeepLearning:
I would say it's a great place to learn and everyone in the industry would respect your experience there. You would likely not have any trouble getting interviews at citadel, two sigma, etc. but it is probably not a place where you'd want to spend your entire career if you're looking to become a PM to make 7 figures or whatever.

Maybe I'm wrong, but I'm not so sure if it would be that easy to move from AQR to a place like citadel. And even if, probably only at very junior level. Citadel is all about alpha. You cannot get away running commoditised strats there. So if anything you would be regarded as a well groomed entry level quant

 

Agree with DeepLearning here. I don't think people realize just how low-fee AQR is; they're entirely competitive with other players in the smart beta/factor market, and their implementations of factors tend to be moderately better than peers. Lots of their products sell (net of discounts) for 10-20bps. And lots of people move from AQR to Citadel, Two Sigma, etc. I've seen many such moves.

AQR's problem isn't that their products are mis-priced or mis-marketed, or that they do bad quant work. It's that the value factor has been a wreck for several years now.

 

Second what DeepLearning said. I am continually surprised at how even experienced people in this industry tend to lack breadth and knowledge on the broad industry.

First of all, AQR is not just a single fund. It is firm that has somewhere between 30 - 40 different funds, each specializing in its own set of strategies. Many of these are essentially running some form of risk premia strategies, which are designed to have low costs and high capacity, and provide betas and not alphas. These are the ones which have really suffered in recent years.

This is the reason why funds like these charge only 1% management fees and no performance fees. They do not aim to "outperform", instead they track premia like value, momentum and quality which are well known, and backed by much academic research. Naturally when these factors underperform, the funds tracking them will suffer as well if they are actually doing their job.

This is in contrast to those sub 10B funds that seek to provide alphas, i.e uncorrelated returns, but have much more limited capacity. They also charge investors a performance fee and often higher management fees than the above. Those are the ones who are worth roasting when they underperform through an entire market cycle and suffer massive drawdowns during quant crashes.

 

I interviewed with them a few years ago (and am familiar from the space more generally) and I largely agree with what others have said - it leans heavily on academic pedigree with limited opportunities for advancement without a PhD and offers relatively commoditized products with mediocre historical returns over the past decade.

My experience personally is that they reek of academics with very little focus on market savviness, For perspective, I interviewed with someone working to help launch a quant credit strategy and I made what I thought was a relatively obvious comment along the lines that one of the issues with L/S quant credit is that the lower volatility of credit (relative to equity) and the higher correlation of single-name credits (again, relative to equity) required a higher a degree of leverage to achieve an appropriate level of strategy volatility. The person with which I was interviewing had a look a on his face as if he had never even thought of this before and he was a PhD who had been at AQR for around 5 years. We then transitioned to a conversation about nitty gritty details related to regression methodology and never ended up back remotely close to markets over the next 45 minutes.

That was simply my experience which I found an odd outlier relative to many other funds with which I interviewed for similar roles at that time.

edit: to add for full transparency, I received the feedback that I was not a good fit for a Research role, but I was viewed as a great fit for Business Development and I bowed out of the process.

 

I believe Business Development incorporates all of their Client Services / Investor Relations functions. Within that group, they have seats that are essentially Client Strategists who are relatively investment savvy / markets competent and talented at explaining concepts / working with clients. I actually believe it to be a pretty good seat overall (at most places, not just AQR) if you aren't looking for a PM path.

 

Higher correlation isn't really a case for needing more leverage. Its literal impact is making the portfolio vol higher. And presumably that means you can also find larger signals (higher returns) because they are harder to diversify so there is less competition to capture them (read Markowitz, bigger premiums for harder to diversify risk :)

If anything higher correlation suggests the need for less leverage because returns on each alpha should be higher. 

 

Your first point is true for long only, but in long short the issue is the shorts corr will dampen vol-- can think of this as being long something with perfect -1 correl. 

This is also a portfolio management question, your risk premia point (while theoretically true enough) doesn't affect the portfolio's vol over all.  When you're building an institutional product you end up building a target vol level as an input to leverage, "target returns" (if they exist at all) are an output. 

 

Anyone have insights on how the offer rates are like this year?

 

The problem with smart beta-like funds is that the business model is good for the senior management but not junior employees, who are very much a commodity. The environment is more like a bank, where you get a good lifestyle at moderate pay (often less than what big tech firms pay) but never have much impact on the firm's strategies. The work is of limited value anywhere else, even though people do move to more alpha-oriented firms. The frontline staff who generate value for the firm and get compensated well are the sales and business development people, not the researchers or PMs. As noted earlier though, AQR runs a wide range of products, which include both smart beta funds as well as more alpha-oriented funds.

 

Echoing the sentiments of what a lot of other people have said, if you're thinking of joining AQR out of college, I would say its definitely a good place to spend the first 2-4 years of your career. You're going to learn a basic framework for quant investing, but some combination of the lack of market-specific knowledge and slow speeds (and high capacity) of the strategies they run make it not ideal for learning strategies that run at the 1 or 1.5 sharpe most standalone PMs need to run at eventually. But still, will get you interviews pretty much everywhere, and its up to you to make that transition and figure it all out at your next stop. Their performance isn't the best but acceptable for the breadth/speed of what they run (ex: you're never ever going to see 2-3 IR's at the speeds they run at).

 

Great place to learn for 2-3 years and then exit to somewhere else. There are not a lot of places that will let you see all of their signals as a fresh grad and push new signals as early as your first few months there. The way they specialize their quants into a domain (equity, credit, macro, vol, etc.) can be quite helpful if you like the domain because other funds will pay well for the specialized expertise.   

Like others have said, not a place to stick around long term. Their starting compensation is decent but grows slowly, and performance has been bad lately. Also, they have an army of competent PhDs who love their jobs and are willing to work without exorbitant pay so they don't see the need to compensate beyond that. 

 

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