It’s a mistake that recalls the firm’s approach in January last year, when Fed Chairman Jay Powell signaled he’d do whatever it took to keep the economy growing. Having made 14.6% in 2018 mostly thanks to forecasting December’s market meltdown, Bridgewater failed to switch its portfolio to a more bullish position and lost just over 5% in the first two months of 2019. In response, it tweaked its models to better respond to the paradigm shift.

Fixing Models
While rivals such as Renaissance Technologies use math-heavy quantitative methods, Dalio has built his firm and fortune on models that treat economics as a discipline akin to the timeless laws of physics.

Former employees said that Dalio’s broader profile has distracted him from the firm. He has also resisted changing the computer models, they said, including adding new types of data that’s standard at other firms such as tracking oil tankers and credit card activity.

One person close to the firm disputed that characterization and said that over the past five years Bridgewater has made significant improvements to its processes.

This year, after central banks around the globe flooded markets with liquidity in response to the Covid-19 pandemic, Bridgewater investment staff worked again to change the models, this time to account for the unprecedented intervention and the near-complete shutdown of the world’s major economies. They spent more than a month turning off strategies they didn’t think would work in the new environment, and tweaking ones they believed were applicable.

Dalio himself spent as much as 70 hours a week working on the issues, said the person close to the firm, and the risk levels have been at historic norms since about August.

Staff Jitters
Compounding the performance issues, however, are personnel disputes. Former co-CEO Eileen Murray sued Bridgewater in July over her deferred compensation, and alleged gender discrimination in an ongoing battle over her departure package. Investors and consultants said the dispute troubled them, especially given Murray’s status at the firm and in the financial industry overall.

Karen Karniol-Tambour, head of research, has also been at loggerheads with Bridgewater over unequal pay, the Wall Street Journal reported. After the story was published she said in a note to staff and investors her issue had nothing to do with gender.

Amid the difficulties, Bridgewater has cut dozens of employees, saying that fewer are needed because of the pandemic and because it expects to have a smaller number of clients (though not necessarily fewer assets) in the future. The firm has said it now has about 300 investors, down from around 350.

The clients that have stayed cite an annualized 10.4% gain since 1991, and unparalleled customer service. Roughly 200 employees, about half the investment staff, work with clients, and the firm publishes a newsletter with market analysis. It also produces bespoke reports for clients on their entire portfolio -- everything from risk analysis to the impact of inflation.

But Bridgewater employees have been unsettled by the poor returns and the layoffs, according to people who have spoken to current staffers.

An arbitration case against two young money managers, Lawrence Minicone and Zachary Squire, who left Bridgewater and planned to start their own firm, Tekmerion Capital Management, also caused concern among staff. An arbitration panel found in July that Bridgewater had brought a theft of trade secrets case against the pair under false pretenses to slow down their progress.