Ray Dalio
(Al Drago/Bloomberg)
Bridgewater Associates, the world’s largest hedge fund firm, had a tough 2019.
The firm’s flagship Pure Alpha strategy was essentially flat in 2019, with Pure Alpha 18 Percent, the more leveraged version, falling 0.5 percent for the year, according to an investor in the funds. The less leveraged version, Pure Alpha 12 percent, gained 0.5 percent for the year. Pure Alpha 18 percent had been in losing territory all year.
The performance stands in sharp contrast to that of many other hedge fund firms whose performance is more closely tied to the Standard & Poor’s 500 stock index. The S&P 500 gained 31.5 percent last year, including dividends reinvested.
On the other hand, Bridgewater’s All Weather fund gained 16 percent for the year, according to the investor. Bridgewater declined to comment.
The performance also marks an abrupt reversal from the previous year. In 2018 the Pure Alpha Strategy gained 14.6 percent in a year when most asset markets finished in negative territory, and many hedge fund managers were flat or down. All Weather lost 5.1 percent in 2018.
Over its 28 year history, Pure Alpha has produced average annual returns of 11.5 percent per year. Since its inception in 1996, All Weather has returned 7.8 percent per year on average.
Before last year, Bridgewater had made money, net of fees, in all but three years since its December 1991 inception and had positive returns for each of the 18 years through 2018.
Bridgewater, headed by Ray Dalio, is a macro manager that trades in more than 150 liquid markets throughout the world, including stocks, bonds, currencies, and commodities. It manages more than $160 billion in assets for about 300 institutional investors, including public and corporate pension funds, university endowments, charitable foundations, supranational agencies, foreign governments, and central banks.
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The Pure Alpha funds are closed to new investors, and there is a long waiting list to get in. The All Weather funds are offered to investors who just want exposure to beta and no view of the markets.
Bridgewater stresses in communications to clients that Pure Alpha is designed to produce positive alpha compared with a benchmark of a client’s choosing, regardless of the direction of the markets, by having no systematic biases. The Pure Alpha funds employ Bridgewater’s tactical mix of bets.
The funds are also uncorrelated with the rest of the market. From inception through the end of 2018, it had a 0.19 correlation with equities, 0.15 with bonds, and 0.07 with other hedge fund managers, according to an earlier Bridgewater document.
Pure Alpha especially rewarded investors in 2008, when it gained 9.4 percent in a year that the S&P 500 lost 37 percent. It outperformed the markets to a lesser degree in 2018.
The Pure Alpha strategy is also structured to offer investors varying degrees of volatility, according to the investor. Clients frequently overlay a Pure Alpha fund on a beta strategy of their choice, such as on top of the S&P 500 or on top of All Weather. Overlay strategies involve using derivatives to replicate or offset an asset class or market exposure.
Meanwhile, a China version of All Weather, All Weather China, which was created for international investors who are seeking some exposure to China, rose 20.1 percent in 2019, according to an investor.
Last month, Bridgewater announced that co-CEO Eileen Murray will leave at the end of the first quarter of 2020. Co-CEO David McCormick will serve as CEO. McCormick joined Murray as co-CEO in 2017. The firm portrayed these moves as “the next phase of its successful 10-year leadership transition.”
