Dalio, 62, built Bridgewater into the world’s largest macro hedge-fund firm, with $122 billion in total assets, by tacking against consensus. He’s created a distinct workplace culture and a research-driven investing process that spreads risk across scores of markets.
“Making money is a zero-sum game, so to be successful you have to be willing to stand apart from the crowd,” Dalio says. “And you have to be right.”
The founder was right often enough during and after the worst financial crisis in decades starting in 2008, helping to cement his reputation. Three Bridgewater hedge funds placed among the 100 top-performing large funds in Bloomberg Markets’ annual ranking, including its flagship, Pure Alpha II. The No. 3 fund posted a 38 percent return for the 10-month period through October 2010.
Dalio’s influence spreads beyond his elite industry. He and his colleagues regularly brief central bankers, as well as pension and sovereign-wealth funds, on their outlook. The firm’s newsletter — Bridgewater Daily Observations — is required reading for macroeconomic thinkers for its prescient analysis.
In August 2007, as credit markets were tightening, the newsletter warned, “Hedge funds in general are unlikely to provide much diversification to help protect against poor performance of traditional markets.” The next year, funds lost an average of 19 percent.
“You find insights that are different from what you were thinking,” says Hilda Ochoa-Brillembourg, president of Strategic Investment Group.
At its headquarters in Westport, Conn., Bridgewater devotes a great deal of resources to research. The firm’s 1,200 employees generate data and analysis that inform bets on macroeconomic trends. In June, researchers tracked the percentage of world gross domestic product generated by Western Europe, the United States, Africa, China and other markets to the 16th century to show long-term shifts in economic power.
44.8 percent return
“No one pursues market-based truth more aggressively than Ray,” says Britt Harris, chief investment officer of the Teacher Retirement System of Texas.
In July 2007, more than a year before the bankruptcy of Lehman Brothers, the newsletter cited “pervasive fragility” in the financial system. It noted the 50 percent growth in the notional value of credit derivatives, to $29 trillion, during just the last half of 2006. So Pure Alpha II piled into Treasury bonds, shorted stocks and loaded up on gold. It finished 2008 with a gain of 9.4 percent, investors say.
By 2010, against a forecast of anemic growth in the United States and Europe, Pure Alpha II’s wagers were spread more widely than usual. It made money on developed-market currencies, equities, and emerging-market debts and currencies, as well as commodities. Investors say the fund generated a 44.8 percent return last year. And amid the market turmoil of 2011, the fund is up 25.3 percent through Aug. 31. All told, Pure Alpha II has returned 15 percent annualized since its Dec. 1, 1991, start.