While many hedge fund big shots have been suffering through hard times and seen their businesses struggle, billionaire Clifford Asness has been doing great. Just how great Asness has been doing was revealed recently for the first time in a Securities & Exchange Commission filing.
Asness’ AQR Capital Management earned $530 million in 2016 on revenues of $941 million, the SEC filing shows. To put that in perspective, AQR’s revenue is greater than the $770 million of revenue reported in 2016 by billionaire Dan Och’s Och-Ziff Capital Management, the nation’s largest publicly traded hedge fund firm. Och’s firm lost $131 million last year. AQR’s revenues also beat those of the world’s biggest publicly traded hedge fund firm, Man Group, which lost money last year on $827 million of revenues.
AQR’s revenue is nearly five times greater than the revenue generated at billionaire Mario Gabelli’s mutual fund firm, which earned $117 million in 2016. Gabelli has in the past been the highest-paid CEO of a publicly traded Wall Street firm.
AQR has been doing so well that Affiliated Managers Group, an opaque publicly traded company that takes stakes in asset management firms, could no longer keep AQR’s financials secret under securities rules. Affiliated Managers Group, or AMG, has long owned a minority stake in AQR and last Friday it disclosed AQR’s financials in a securities filing because AQR is now contributing more than 20% of AMG’s pre-tax earnings.
AMG owns stakes in firms like hedge fund billionaire David Harding’s Winton Group, hedge fund manager Jeff Ubben’s ValueAct Capital Management and hedge fund manager Andrew Feldstein’s Blue Mountain Capital Management. But AMG doesn’t disclose the financials of those firms or any other ones in which it holds a stake. Wall Street analysts have desperately been asking AMG for more financial information about AQR as it became a more important component of AMG.
Forbes reported in March that Asness is one of the biggest new billionaires Wall Street has produced in years, with a net worth of $3 billion. Two of Asness’ AQR co-founders, David Kabiller and John Liew, are each worth $1 billion. With $185 billion of assets under management, AQR is one of the world’s fastest-growing asset management firms. It was managing $33 billion at end of 2010. The growth has come from Asness’ decision to move aggressively away from traditional hedge funds and into lower-fee products, including mutual funds, that emphasize factor investing and what has become known as smart-beta. That has meant no more 2 and 20 for Asness-- or at least a lot less of it. AQR's financials imply that the firm, on average, is charging clients a fee that is much lower than 1% of assets under management. Asness instead has successfully sold investors on an approach that aims to merge the virtues of passive and active investment management.
AQR’s financials show that Asness is not done selling. AQR spent $400 million on general and administrative expenses and compensation last year, up 60% in the last two years. So while revenues at AQR are up 40% in the last two years, earnings have only grown by 28% over the same period. AQR's Kabiller has 142 people working in AQR's business development group. The firm is gearing up for a push into factor-based fixed income products. It does seem like AQR’s remaining hedge funds did produce lower performance fees last year, showing again why Asness' move into products like mutual funds has helped AQR.
“The AQR financials highlight ongoing investment in the platform,” Daniel Fannon, an analyst at Jefferies who covers AMG, wrote in a note. “Increased transparency we view as a positive. Whether this was forced or not.”
