Page 38 - Investment Advisor July/August 2021

2021 Asset Managers and Strategist of the Year Awards

Alternatives Manager of the Year
AQR Capital Management

AQR Diversified Arbitrage Fund

fund run by former academ- acquisition companies, or SPACs,
A ics doesn’t normally con- to the mix, they launched the AQR
note “standout,” but in the case of Diversified Arbitrage Fund in 2009.
the AQR Diversified Arbitrage Fund, As the Envestnet analysts observed,
the term applies. The 2021 winner of unlike its liquid alt peers, the AQR/CNH
the Envestnet/Investment Advisor method of using multi-strategies “gives
Manager of the Year award in the them the flexibility to rotate and shift
Alternatives category came in with a investments across different strategies
25.2% return in 2020, putting it at in reaction to different market environ-
the top of its peers for the year and ments, so they can capitalize on the best
beating out the field of 35 Envestnet investment opportunities available in
recommendations. Further, it’s been in the marketplace.”
the top quartile in the past five years And that is why Pulvino says: “What
except for 2018, when it was in the Todd Pulvino we did in 2020 was really a reflec-
second quartile. tion of all [our prior work]. So what
Managed by CNH Partners, an Title: Principal happened in 2020 was actually partly
affiliate of AQR, the fund is direct- Years with AQR: 20 due to our experience in 2008 and the
ed by co-founders Todd Pulvino and Years in financial services: 23 financial crisis. In 2008, many securi-
Mark Mitchell. The two began work- ties traded cheap to theoretical value.
ing together in 2000, when Pulvino [But] I think the best risk-adjusted
was a professor at Northwestern Asset management firm: CNH trade I’ve ever seen — and it’s really
University and Mitchell a professor Partners, an affiliate of AQR Capital because the risk was zero — was SPACs
at the University of Chicago. Early Management in the financial crisis.”
on, they did a joint venture with the Firm headquarters: Greenwich, Back then, SPACs were yielding a 10%
“AQR guys” who were former UC doc- Connecticut to 12% return, with little or no risk, and
toral students. Pulvino and Mitchell became “massive
They launched their fund — to be Year the firm was founded: 1998 buyers of SPACS,” Pulvino said. “We
focused on merger arbitrage — on Number of employees: 700 would buy up to 20% of one SPAC …
Sept. 1, 2001, and were about 75% AUM as of March 31, 2021: and we would build portfolios of these
invested with seed capital when the $140 billion SPACs. Since then, we’ve continued to
planes hit the World Trade Center on build diversified portfolios of SPACs.”
Sept. 11. Also in 2020, the convertible bond
“Of course the markets closed, and the U.S. economy went market dislocated, and bonds were cheap. “In March last
into a recession. And there were no mergers, so it was hard to year, a lot of people were massive sellers of convertible bonds,
be in the merger arbitrage orbit,” Pulvino said. They had two both in the secondary and primary market,” he explains.
bad choices: Double down and put all the money into the few “We’ve been down this road four or five times before in con-
mergers there were, or put half of their assets in cash, which verts. So companies were issuing these bonds, and we were
is what they did. buying them.
If there was a silver lining to that awful event, it forced “...Various things can happen to a convertible bond
the team to look beyond the merger arbitrage strategy. “It investment, but they ended up richening and paying a nice
caused us to recognize early that a multi-strategy approach return. So between SPACs and convertibles, that generated
is much better than a siloed approach,” he said, so they the return. It brought together all the little things we’ve
added convertible arbitrage to their toolbox. “ learned over the past 15–20 years. It’s going all the way back
The thought was, when there are no mergers, then to the plane, the World Trade Center. There were no merg-
convertibles typically are very active,” he explained. ers after March [2020], but fortunately, we have this multi-
Then, adding event-driven strategies and special-purpose strategy fund.” —GS

36 INVESTMENT ADVISOR JULY/AUGUST 2021 | ThinkAdvisor.com