Video: Cliff Asness on The Problem With Hedge Funds

In this video from Fortune, AQR Capital Management co-founder Cliff Asness says the number-one problem with hedge funds is that they’re not fully hedged. He says they end up being “40% net-long beasts” in the market, and that hedge-fund investors end up paying too much in fees for something that’s 40% similar to a low-fee, long-only index fund.

At the same time, Mr. Asness says his opinion on hedge funds is “schizophrenic,” since he also defends hedge funds against misguided attacks. The only people who should be disappointed with hedge-fund performance, in his view, are people who think you should be 100% net-long in bull markets and 0% net-long in bear markets – otherwise, you should expect hedge funds to underperform when times are good and outperform when times are bad.

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