Cliff Asness may actively invest more than $100 billion in hedge and mutual fund assets for clients, but he tells his family to talk to the grandfather of passive investing, Vanguard's Jack Bogle.
"The average relative asking for advice, I say 'have you heard of this man Jack Bogle? He's a very nice man,'" the co-founder and CIO of AQR Capital Management said Friday in a keynote speech at the Morningstar Investment Conference in Chicago.
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"I think as a starting point, I don't think (markets) are perfectly efficient. I do think we can do better. He's an investing hero of mine and I would disagree with Jack on this. But I think it's a better starting place to believe in Jack Bogle than to believe in eight stocks for many people," Asness said.
The comment underscored the topic of Asness' speech—and market philosophy—that is somewhere in between a belief in pure market efficiency and the ability to beat the average return by securities selection.
"Do we try to do better than benchmarks? Yes. That makes us active, yes," Asness said. "When I'm talking about active here, I'm talking about stock pickers. I'm cynical without being dismally cynical about this. But if you find your average stock picker, I will bet a lot that they think the market is way more inefficient than I do."
Asness' AQR is known to take a relatively quantitative approach to investing, using large sets of data to predict price movements.
The Greenwich, Connecticut-based firm is "built at the nexus of financial theory and practical application" to "deliver concrete, long-term results by looking past market noise to identify and isolate the factors that matter most, and by developing ideas that stand up to rigorous testing," according AQR marketing materials.
Asness was asked by a member of the audience what would happen if everyone only used index funds.
"I'll tell you what a Jack Bogle ... would tell you. 'The averages still can't beat the average, that's just math. And if they charge any fee above and you buy the average active manager, you're going to lose. You have to buy the right active manager.' They are not wrong," Asness responded.
But Asness defended active investing, saying that it was still possible to pick winners and losers with good research. He added that the notion of everyone indexing was "silly."
"I don't think it would ever get that far," Asness said.
He largely avoided providing his views on markets today. Instead, Asness focused on various academic theories around market efficiency to illustrate his beliefs, which are in the middle of two camps on the subject.
Asness did hint that currency markets are relatively inefficient because of large central banks and companies acting without a pure profit motive. He also said that there were relatively larger inefficiencies to exploit in small-company stocks and emerging markets.
But he quickly added that were no easy arbitrage in any single asset class.
"There's not a great free lunch. It's not like there's just one market that's super great," Asness said.
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—By CNBC's Lawrence Delevingne
