Ray Dalio is having a very bad year.
So very bad, in fact, that the billionaire risks losing his coveted title as king of hedge funds.
Dalio’s $148 billion Bridgewater Associates has run up hefty losses this year, even as rivals have minted money in the topsy-turvy markets. The damage as of August: an 18.6% drop in the flagship Pure Alpha II fund.
Those losses, the worst in a decade, top a sprawling list of troubles that has plunged Bridgewater into a round of crisis management, according to more than 25 people with knowledge of the firm’s inner workings.
First, Bridgewater’s computer models initially misread the markets for a second year in a row. Then, big clients began to head for the exits. Investors pulled a net $3.5 billion during the first seven months of the year. Industry consultants expect more to follow.
If all that weren’t enough, Dalio lost an arbitration fight with ex-staffers, is feuding with his former co-chief executive and has axed dozens of employees.
It’s a remarkable turnabout for Dalio, 71, who has long prided himself on being a big thinker on the world economy, management and more. Bridgewater insiders are concerned that the firm lost its way as Dalio cultivated his iconoclast image, hit the Davos circuit and published his 2017 best-seller, “Principles,” his rules for life and business.
At virtual town hall meetings and in client letters, Dalio and his co-chief investment officers have tried to put an optimistic face on the situation. Human beings tend to learn more from mistakes than successes, they say, and this year, we are learning a ton.
Lagging Returns
Despite the turmoil, the firm is confident about its position, and its ability to perform for clients.
“Investors believe this environment, where the world is changing rapidly, is a strong environment for a firm like ours that is so committed to understanding how the world works,” Westport, Connecticut-based Bridgewater said in a statement.
The firm has 45 commitments from investors, including many in the $1 billion range, it said without specifying whether the money is heading into the high-fee Pure Alpha hedge funds or low fee long-only products.
But there’s no getting away from lagging returns during a year when assets from global stocks to gold have risen amid the turmoil. Rivals including Caxton Associates and Brevan Howard Asset Management have posted double-digit gains.
This year’s inability to turn big ideas into big returns may be the last straw for some investors after nearly a decade of low-single-digit gains coupled with high fees.
The problem, according to those with inside knowledge who asked not to be identified without permission to speak publicly about the firm, is that Bridgewater cut risk in March as the market crashed and was slow to ramp up again -- even as the Federal Reserve unleashed an unprecedented support effort. So even though it correctly touted trades such as going long equities, buying gold and betting on the yen against the dollar, it failed to benefit from its own foresight.