Even if your fund hasn’t plunged to the depths of Bear-bad, in the parlance of our times, it’s considered good form to check in with investors to tell them everything’s “A-okay” (or “been better,” or “one standard deviation above shit”) every so often, so as to cover your ass when the eventual blow up comes. The key factors to this sort of letter are to acknowledge the losses, attribute them to something out of your hands, make promises about the future based on champagne wishes and caviar dreams, and, if there’s time, be kind of stand-offish about the whole thing. Don’t be an outright jerk, but be sort of cool, like you’re above the whole thing, and you’re kind of barely deigning to discuss the matter because “rumors” have forced you into the position. Be David Caruso in "Jade."
AQR manager Clifford S. Asness whipped up one of these communiqués on Friday, after one of AQR’s Global Stock Selection funds lost 21 percent year to date, to perfect execution. Take his opening, which is flawless:
Many of you may have heard rumors concerning us over the last few days. If the rumors are that we've had better weeks, then they are accurate. If the rumors are that we are in some pain over the recent widespread quant stock selection woes, then they are accurate. If the rumors are more severe than that, then they are simply false.
The detached tone? The “people have been saying a lot of negative stuff about us, all of which you probably heard about before us, but we’re going to treat you like small children, hold your hands and break it down for you” patronizing? The “if you put two really bad things about yourself on the table and concede that they’re true, then come up with something catastrophic that couldn’t possibly be true and say ‘that’s just plain ridiculous,’ you’ll earn credibility for being honest about a. and b. and look good for not having committed whatever c.’s monumental fuckup was” approach? Genius. *
Cliff goes on to note how a hedge fund goes about picking a stock to long or short, and muses that, of late, his fund’s ability to do so hasn’t been so great. In fact, their previously “winning strategy” has been, in recent weeks, “shockingly bad.” Why? Too many people have been crowding AQR’s plate, trying to do what they do. If you’re asking yourself if any problem lies with the models, don’t ask yourself that.
This is also good:
I occasionally hear broad statements like “this just shows computer models don’t always work.” That’s true, of course, they don’t, nothing always works.
Guess you can't really argue with that. And from the unedited version of the letter: “Pop quiz asshole, know what else doesn’t always work? Condoms, but do you stop using them? No, you’re stuck with them for better or for worse (unless you hit the jackpot), and you keep using them, and you use them over and over again, and on those rare occasions that they fail—not unlike our fund—do you blame the manufacturer? No, you blame the ho (and by 'ho' I mean 'God').”
As always-- we remain, above all, beyond a shadow of a doubt, DIVERSIFIED.
Full letter below, from which we suggest you take copious notes, particularly about the recent events of the day being an “opportunity." To win it.
AQR Letter [PDF]
AQR Losses [Bloomberg]
*Example: Here are some negative rumors about me—a). I sleep really late on the weekends—sometimes ‘til 4 or 5. I’m here to tell you that that’s true. b). I’ve downloaded music on the internet before without paying for it. I’m here to tell you that that’s true. c). I gave Pol Pot all his ideas for what to do with the Khmer Rouge. Now that is just ludicrous, and certainly not true. Any rumors that insinuate otherwise are baseless and irresponsible.
I’m looking pretty good now, right?