Running Dead: Aqr’s Delta Strategy Harvard Case Solution & Analysis


            The headquarters of AQR is located in Greenwich CT and the company was founded by John Liew, Robert Krail, David Kabiller and Clifford Asness. The company has always been working on developing different forms of the hedge funds for its investors so that its investors get a maximum amount of return with the minimum value of the risk in the investment.

            Many of the investors invested in the hedge funds and found the hedge funds more appealing, however, there were also many hedge funds that were not at all appealing to the investors because of other alternatives available in the market. One such alternative was the funds of hedge funds investment option. They would take the money from the individuals and invest that in money such hedge funds that have modest capital.

            The second alternative included the multi strategy funds. Then in the year 2006, the hedge fund replication products were introduced. Despite, a high degree of competition in the market, the company had always focused on analyzing the returns of its business and providing its customers with risk adjusted returns based upon the bottom-up approach followed by the company.

Problem Diagnosis

            The Delta fund has been performing well since the inception of the company and the introduction of the delta strategy. However, the hedge fund managers of the company have predicted that the performance of AQR’s hedge funds was going to decline in the near future and therefore, in order to overcome that urgent remedial actions and a thorough analysis of this strategy’s performance needs to be done.

            The Delta strategy had begun with outstanding results in the year 2008, but soon after that Kabiller felt that the delta hedge fund of the company was losing its potential. There were three challenges that were being faced by the company. The first one was to decide upon the best fee structure and decide which was the best management and the performance fee structure.Secondly, the marketing for the replication strategy was slowly and gradually emerging in the market therefore, the company also needed to decide upon the marketing strategy for Delta.

            Finally, the last problem that was faced by the company was that the track record for Delta was a limited one. Although this hedge fund had outperformed the HFRI Index in the first quarter of the year 2008, however, the past track record that was available was limited. All of these issues needed to be addressed to overcome the challenges facing the Delta hedge strategy.

Analysis of Delta Strategy

            The analysis of the Delta strategy for AQR has been performed on a range of metrics including alpha/beta exposure, liquidity, minimum investment, diversification, and managerial talent decision, access to niche or closed strategies and incentive provision to the managers.

Comparison with other strategies

            The delta strategy has been outperforming all the strategies that are currently present in the market. First we talk about the liquidity of the different hedge funds, and then we could see that the most liquid of all the funds is the delta fund. All the other strategies allowed redemption on only certain dates, whereas this was not the case with the Delta hedge fund strategy.

            Such as FOFs had more difficulty regarding their liquidity and there was more chance that the investors would face liquidity problems if they invested in the FOFs. The liquidity for the multi strategy funds was much better than FOFs but it was not as good as of Delta fund. However, the liquidity for the Hedge fund replication was good at it was formed with the combination of liquid instruments.Running Dead Aqr’s Delta Strategy Case Solution

            Secondly, the initial minimum investment was another problem that made all the other investment alternatives tasteless for the investors. However, there was no such limit for investing in the Delta hedge fund.Similarly, the fees were another major problem and investors disliked paying such higher fees. Delta had an advantage in the fees as the delta strategy charged relatively lower fees to the investors, however, these features had yet to be marketed to the investors.

            From the point of view of alpha and beta exposure, it could be said that all the strategies along with the delta strategy inhibited the beta exposure in its returns whereas the case for the hedge fund replication was different under which the hedge fund managers considered that the line between the alpha and beta exposure was liquid and both could be considered same in the case of hedge fund replication product...........................

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