How Ray Dalio Broke Into China

Building on its founder’s decades of philanthropy and local relationships, Bridgewater Associates wins a Chinese license.

Illustration by Nicolas Ortega

Illustration by Nicolas Ortega

Ray Dalio’s Bridgewater Associates — the world’s largest hedge fund — is about to enter China. This is the first global alternative manager to be granted a domestic investment license, allowing Bridgewater to raise funds from local high-net-worth individuals and institutional investors, according to sources close to the company and analysts who cover Asian markets.

The firm’s success in gaining a wholly foreign-owned enterprise license to set up a Chinese asset management company for the purpose of investing in Chinese markets, analysts say, was paved in part by years of charitable giving and Dalio’s personal relations as an informal adviser to some of the nation’s most senior regulatory officials.

Bridgewater first set up an office in Shanghai’s Free-Trade Zone in 2016. The firm has since become one of 23 foreign asset managers granted a WFOE license, according to Shanghai-based Z-Ben Advisors, which counsels foreign fund managers on their China market entry strategies. The majority of the 23 are global long-only fund managers, such as Fidelity Investments, Vanguard Group, and Black Rock, according to Hubert Tse, a partner with Shanghai-based law firm Boss & Young. The only other alternative manager to receive a domestic license so far is Hong Kong–based Value Partners.

“When China decided to open domestic markets to foreign asset management companies by allowing them to set up wholly foreign-owned enterprises, they wanted in many ways to first attract the biggest and best in each class,” Tse says. “By attracting Bridgewater, which is largest in the hedge fund world, China felt it would help China attract the best hedge funds from around the world. China also felt that it will only help further open up the market by allowing the biggest and best to come in first. There is no point in allowing in the small ones to come in first.”

Bridgewater enters China as some American hedge funds short Chinese equities. Most famous among the China bears are Jim Chanos (Kynikos Associates) and Kyle Bass (Hayman Capital Management), who have taken various short positions on the premise that the Chinese economy is headed toward financial crisis because of rising levels of corporate and public-sector debt.

The company declined to comment when contacted for this story, but Dalio himself does not seem overly bothered by China’s debt situation. “They definitely have a debt issue, but the debt is denominated in their own currency,” he said in a recent video interview with “Their economic policy makers are very, very smart and sensible people ... We were one of the first to bring up that there is a debt problem, but when a debt is denominated in one’s currency, it’s manageable.”

Bridgewater’s entry into China was in many ways a multi-decade endeavor. By Dalio’s own admission in his book, Principles: Life and Work, published in September, he served as an informal adviser to Chinese regulators in the formation of the nation’s stock markets in the late 1980s. A few years ago, Dalio founded the Beijing Dalio Public Welfare Foundation, led by Jesse Wang Jianxi since 2013, after he retired as chief risk officer of China’s sovereign wealth fund, China Investment Corp. Dalio is also a member of the board of the China Global Philanthropy Institute. His son, Matt, at just 16 years old, set up a charity called China Care to help special-needs orphans.

“Bridgewater may be the first large hedge fund to obtain access to the Chinese market due to behind the scenes maneuvering by Ray Dalio, which is likely to have included the appointment of Jesse Wang from CIC,” observes Andrew Collier, managing director of Hong Kong-based hedge fund advisory firm Orient Capital Research. “Alternatively, it is known as a macroeconomic and quantitative fund, which may have appealed to regulators concerned about aggressive long-short funds roiling the Chinese markets.” The real question for market observers is how much Dalio will model Bridgewater’s China operations on the firm’s global operations, says Collier, who from 2009 to 2011 was the New York–based president of the Bank of China International, the offshore equities arm of the major Chinese lender.

“It has a huge financial investment in proprietary trading technology,” Collier says. “Is the firm willing to put this data on Chinese-owned servers, open to any government agency in China, including the security forces, and potentially competitors? Or would he try to run his algorithms from abroad and just port the results into China? I would suspect that Dalio is going to tread very cautiously in the initial days and maintain a sparse operation at the outset until he is more confident about protections for his firm.”