Black Swan Author Spars With Quant Legend Over Tail Risk Hedges

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(Bloomberg) -- “Black Swan” author Nassim Nicholas Taleb and quant investing pioneer Cliff Asness have engaged in a vitriolic Twitter dispute over the esoteric world of tail-risk hedging that descended into personal insults.

The spat began when Taleb sent a pair of tweets accusing the $143 billion AQR Capital Management LLC of issuing flawed reports that say tail-risk hedging doesn’t work.

After Taleb extended his argument to include a personal insult against AQR principal Antti Ilmanen, the firm’s billionaire founder Asness stepped into the fray.

AQR didn’t immediately respond to an email seeking comment outside of normal business hours. A representative for Taleb said he declined to comment further, and will let the tweets speak for themselves.

Beyond the insults, the debate centers around whether tail-risk bets -- investment strategies designed to benefit from sudden dips and unforeseen ‘Black Swan’ events -- are worth the money they cost when times are good. AQR has argued that while tail-risk funds achieved massive results in March when global markets tanked, those figures bely the expense of being constantly prepared for doom.

That in turn goes to the business case of hedge funds that have been specifically designed to benefit from ‘Black Swan’ events, such as Universa Investments LP of Miami, which scored a 3,612% return in March and counts Taleb as its scientific adviser.

To be sure, Asness isn’t against the idea of tail-risk insurance, adding that his firm runs a tail risk product “that’s way up this year.”

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