AQR Capital Management is slimming down, this time in the mutual fund world.
Next month, the alternative investment firm plans to shut down several liquid alternative mutual funds, including a multi-strategy alternative fund, high- and low-volatility funds, and a volatility risk premium strategy, and according to Securities and Exchange Commission filings.
“We remain fully committed to the mutual fund business as well as the advisor market, and we believe that the updates we are making to our mutual fund platform will bring greater clarity across products and better assist investors and advisors with making investment decisions,” the firm said in an emailed statement.
It’s no secret that AQR has been struggling with performance and investor redemptions. The firm, like many of its quantitative peers that use systematic value factors in its funds, has been hurt as value has underperformed for a record number of years. Value did bounce back beginning in October, but it’s too early to say whether there will be long-term relief for the style.
Sources say AQR is shutting down funds because there hasn’t been enough demand from investors to justify the products. Indeed, the funds are small. According to Morningstar, the multi-strategy alternative fund, similar in strategy to AQR’s Delta hedge fund, had $33 million in assets. Delta had $1.2 billion as of September 30. The AQR Style Premia Alternative LV Fund had $39 million at the end of October, while the AQR Volatility Risk Premium Fund had $11.5 million, Morningstar said. Both are being liquidated.
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“It’s really been very problematic for them, starting in 2018,” said Erol Alitovski, a senior manager and research analyst at Morningstar. “Their strategies use various risk premia, and value’s underperformance has had a severe impact on many strategies. They’ve had serious drawdowns across the board in liquid alternatives.”
Retail investors, in particular, are quick to leave the strategies at the first signs of underperformance, Alitovski said. AQR performed well in 2015, 2016, and 2017, raising significant assets. But those investors started fleeing after underperformance in 2018 and 2019 and into this year.
“They’ve had persistent outflows for quite a while,” Alitovski said. “It’s a prudent decision on AQR’s part to consolidate.”
AQR is not the only firm to suffer from fickle retail investors with liquid alternatives, which have been touted as a way for individuals to get access to strategies once available only to bigger institutions. When Marketfield Asset Management, a liquid alts firm, was generating top returns, it climbed to a peak of $28 billion in assets. “Then performance turned and assets left,” Alitovski said.
AQR also is merging seven tax-managed funds into their sister portfolios, which have not been tax managed, but will be once the products are consolidated, according to the SEC filings. The merger of the tax-managed funds is being done to achieve greater economies of scale. AQR is convinced it can offer tax management without hurting returns, according to sources.