The Quantitative, Data-Based, Risk-Massaging Road to Riches

Like other hedge-fund managers, Cliff Asness has made money in a lackluster market. But what he really wants is to prove that his geeky method can be the lasting legacy of the hedge-fund frenzy.

  1. Clifford Asness is probably going to be annoyed when he sees that this article begins with a discussion about how much money he makes, but there's no way around it. Asness is a very successful hedge-fund manager, and very successful hedge-fund managers make stupendous amounts of money, even by Wall Street's extravagant standards. And in the public mind, their staggering compensation tends to overshadow pretty much everything else. "Filthy Stinking Rich" was New York magazine's unambiguous take on the hedge-fund phenomenon some months ago. Last month, in its survey of the best-paid hedge-fund managers, Institutional Investor's Alpha magazine reported that the average pay for the top 25 hedge-fund managers was an astounding $251 million in 2004. Asness himself has written, in one of his better lines, that hedge funds "are generally run for rich people in Geneva, Switzerland, by rich people in Greenwich, Conn."

    Asness likes to point out that he wrote that sentence before he moved his own hedge fund, AQR Capital Management, to Greenwich, Conn. He started AQR, with three partners, in the spring of 1998, when he was 31 and had just walked away from a high-paying job at Goldman Sachs, where he was one of the firm's brightest young stars. During AQR's first three years, Asness and his partners didn't make much money. But by 2002, the firm was doing well, investors were clamoring to get in and AQR was managing about $3 billion in assets. (It's up to around $13.5 billion today.) And t...