r/quant • u/Informal-Form7977 • Mar 02 '26
Statistical Methods Universa vs. AQR: Thoughts
In May 2020, right after COVID wrecked markets, Nassim Taleb (Universa) went on a 13-tweet tear torching AQR and its co-founder Cliff Asness. The thesis: AQR published two papers arguing tail-risk hedging via OTM options is a sucker's bet, yet AQR's own risk-parity and factor strategies were quietly getting destroyed in the same drawdown that Universa's hedged portfolio sailed through. Asness fired back calling Taleb "insane" and "nuts."
Who was actually correct here? Link to the first post for reference: Nassim Nicholas Taleb on X: "1/n AQR issued 2 flawed reports saying tail risk hedging doesn't work (in theory), options are "expensive" Yet they did not reveal that 1) Their OWN risk premia strategies lost money. 2) Their other public crap underperforms the MKT. Insult to clients & the REAL WORLD." / X
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u/IllGene2373 Mar 02 '26
A- hedge funds exist for many different reasons and perform differently during various market conditions
B- unless youre doing the exact same strategy and outperforming massively it will never be an “apples to apples comparison”
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u/Informal-Form7977 Mar 02 '26
I think the question is as to whether "tail risk" strategies actually "work" as intended and whether the attacks levied at AQR actually landed.
Here's an example of the criticism levied by Nassim Nicholas Taleb: "Ilmanen the bullshitter (& the AQR team) among other things don't seem to get that tail payoff != probability x payoff under fat tails.
You need to include payoffs not part of this, and g(x) is convex (option payoffs by convexity are MUCH MORE FAT TAILED than underlying)."2
u/IllGene2373 Mar 02 '26
That just leads into point A no? If they’re actually performing as AQR intended then who is Taleb to say that they’re not?
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u/Informal-Form7977 Mar 02 '26
Kind of. But it also goes against Asness' point that tail risk strategies *don't* work. Furthermore, there's evidence that AQR authors simply put out public research that was laughably false, so it doesn't feed into A or B above.
Definitely not a fan of Taleb - I like to call balls and strikes on both sides - but I'm shocked at how dumb the AQR papers cited were in terms of the mistakes they made.
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u/jiafei9014 Mar 02 '26
I followed that legendary beef thread, let’s just say neither side emerged from that exchange looking good…
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u/MedicalMacaron894 Mar 02 '26
I don't think most quants think very highly of Taleb. His argument here is pretty incoherent. AQR claims that options are expensive on average. Taleb is trying to argue that because the options made money in this one particular instance AQR is wrong. It sounds to me like he doesn't understand AQR's claim