|Ray Dalio and Bob Prince:
It’s a way of thinking that is
(Photographs by Michael Edwards)
By Michelle Celarier & Lawrence
Ray Dalio doesn’t want to talk about himself.
His face is drawn, the loss of weight aging the 61-year-old.
Dressed down in corduroys and an open-neck dark blue shirt,
Dalio leans intently across the table, narrows his eyes and
insists that the world’s largest hedge fund firm,
with $87 billion in assets, is bigger than the man who started
it more than 35 years ago.
"It’s not about me," he says brusquely.
But Bridgewater is Dalio. An enigmatic character
whose economic insights are pored over by central bankers
across the globe, he famously started the firm at age 25. Now
Dalio, who is president, chief executive and chief investment
officer of Bridgewater, is starting to pull back. Last year he
sold 20% of his and his family trust’s equity to
senior executives and the firm itself, although he maintains
control. The firm now has two other co-CIOs and co-CEOs and a
nine-person management committee. Moreover, Dalio has been
trying to institutionalize the firm’s brutal
culture to prepare for a Bridgewater without him by penning a
book to live and work by, which he calls, simply,
In terms of performance, last year was
Bridgewater’s best ever, as it netted 44.8% in its
$37 billion Pure Alpha 18% volatility fund and 27.4% in the $11
billion less-levered Pure Alpha 12% volatility fund. Along with
a smaller new fund, and managed accounts, they account for the
$59 billion that makes Bridgewater the largest hedge fund firm
in the world, according to AR’s Billion Dollar
Club. Another $28 billion is in Bridgewater’s All
Weather fund, a leveraged beta strategy that some investors
view as a hedge fund. That fund gained 17.6% in 2010.
Last year’s stellar showing was a big change
for Bridgewater, which won AR’s Management Firm of
the Year award in 2010. Dalio called the credit bubble in 2006,
enduring years of single-digit returns during the past decade.
But by 2008, caution was serving investors well: Pure Alpha
leapt ahead, gaining 8.7% when many hedge funds were in the
The numbers posted in 2010—which Bridgewater warns
is a once-in-20-years event—were particularly well
timed: Bridgewater, and Dalio, last year endured a flurry of
bad publicity that likened the hedge fund to a cult, given the
Tao of Dalio under which it operates. A working environment of
ego-demolishing criticism has made recruiting challenging.
Turnover is high; the new management committee includes five
people hired within the past two years. Moreover, the constant
questioning that Dalio calls the search for "radical truth"
creates a culture that is not only demoralizing but makes it
just plain difficult to get things done, according to former
Bridgewater attracts, and keeps, few hedge fund stars. But a
crew of about 1,100 employees—including many young men
and women who churn out research and algorithms that back
trading ideas coming from the top—toil at the
firm’s only location, a small corporate campus in
Westport, Connecticut. Most are housed in a midcentury modern
fieldstone and glass building nestled in the woods; however,
Bridgewater’s huge growth has forced a number of
employees to work in nearby buildings. Assets have grown 25%
annually during the past decade; headcount has increased
elevenfold since 2000.
Dalio is defensive about the criticism his principles have
received and defines the firm as a "community," not a cult.
"It’s not just a paycheck and a job," says the
billionaire manager. "There’s a mission here that
people are on that they feel good about what
they’re doing...And those two things
together—that meaningful work and those meaningful
relationships—is what produces the results that we
have for our clients."
A number of former employees spoke to AR only on the promise
of total anonymity about their experiences because of legal
agreements with Bridgewater. Some scoff at the suggestion that
anyone goes to work there for any reason other than the hefty
compensation, which can more than double one’s
prior earnings. "The money is the draw," says a former
executive. Dalio of course has become fabulously wealthy. In
2009, even when Pure Alpha’s flagship netted
investors 1.91%, he still made AR’s Rich List,
earning approximately $400 million. Last year, he made about $3
billion, according to AR’s upcoming Rich List.
|David McCormick (center) and Greg Jensen
(right): Bridgewater’s co-CEOs
In addition to Dalio, the brain trust that makes investment
decisions includes silver-tongued co-CIO Bob Prince, who joined
the firm in 1986 from an Oklahoma bank, and cerebral co-CEO and
co-CIO Greg Jensen, who came in 1996 straight out of Dartmouth
College and rose quickly to the top. Bridgewater is a macro
shop, and Dalio, in consultation with Prince and Jensen, is the
power behind the trading decisions. But marketing
Bridgewater’s machine has struck a chord with many
institutional investors, who like the systematic approach it
In a recent interview with AR, Prince and Jensen went on at
length about the process that informs the investment decisions.
Strip away the jargon, and it appears to be little more than
the commonsense methodology of testing hypotheses with
mountains of research and looking at the big picture instead of
the minutiae. "People overfocus on 'What do I do today? What
trade do I make?’ We focus on 'How does it work?
How does the world work?’ " says Prince.
The three like to point to Bridgewater’s
diversification as a key to its performance—not an
unusual stance for a statistical manager with more than 100
positions. But because of Bridgewater’s size, most
of the money is made in just a few big markets. In 2009 Pure
Alpha’s poor performance during a huge global
market rally indicates that diversification can’t
always protect it either.
Bridgewater tends to do better during periods of crisis
(1998, 2003, 2008), and last year, Bridgewater hit on all
cylinders. "We made money in every asset class we trade," notes
Prince. At midyear, some of Pure Alpha’s top bets
included a long yen/short euro position and German
bunds—both trades where it benefited from its analysis
that Europe’s credit problems would worsen. In the
United States, Bridgewater was long short-term U.S. rates,
benefiting from the weakening of U.S. growth. At the same time,
by last March, Bridgewater was calling gold a currency, and a
long gold position added to returns. (For the
firm’s current views, see "The view from
Westport," p. 32.) Pure Alpha 18% lost money in
November—the month that the bond market began
tanking—but it quickly recovered by the end of the
year, gaining 8.3% in December alone. It lost 2.24% in
The firm churns out voluminous research reports on
big-picture ideas, sends out e-mails called "Daily
Observations" and otherwise engages in an inordinate amount of
hand-holding for some 300 clients. It works: Institutional
investors love the place.
Bridgewater may be given credit for helping institutionalize
the investor base of hedge funds, and it has savvily exploited
the trend during the past decade with years of solid, not
flashy, returns. Before fees, the flagship lost money in only
one year, but on a net basis, it has lost investors money in
three years since inception, according to the AR database. It
boasts an impressive 18% annualized return since 1991.
"What we’re trying to do here is to pursue
truth at all costs," says Prince. "That is a way of thinking
and being that’s very different than a lot of
The pursuit of truth is what Bridgewater is renowned for.
But not everyone buys it. "What they really do is have a
dominating view of the way things are done and that predicates
any search for truth," says another former employee, who
likened the language used at Bridgewater to "newspeak," a
reference to George Orwell’s totalitarian
nightmare, "Nineteen Eighty-Four."
DALIO says making a lot of money has never motivated him.
But like many a driven entrepreneur, he grew up with little. "I
have been very lucky because I have had the opportunity to see
what it’s like to have little or no money and what
it’s like to have a lot of it," he writes in the
"Principles." Beyond being able to cover the basics, he says,
wealth isn’t that important.
Raised on Long Island the son of a homemaker and a jazz
musician, Dalio has admitted being a poor student as a youth.
He says he is better at conceptualizing than being precise.
Hearing him speak or answer a question can be a frustrating
endeavor; he has a tendency to ramble and make provocative
statements. In an interview with AR, for example, he asked, "Do
we have more of a free market economy than China?" (He
isn’t sure the answer is yes.)
|Greg Jensen and Ray Dalio: Do we have more of a
free market than China?
After getting a degree in finance at Long Island University
in 1971, Dalio then went to Harvard University, where he
received an MBA in 1973. By 1974, he had been hired as the head
of futures at Shearson Hayden Stone, the firm Sandy Weill would
use as the initial building block of his Wall Street empire.
Upon being fired for insubordination, Dalio decided to start
Dalio didn’t start off managing money; he sold
a daily market commentary letter (a precursor to the
"Observations") and also offered risk management services for