Dalio is leaving nothing to chance. In Bridgewater’s glass-and-stone buildings, a 20-person team has been toiling for the past year on what until now has been a secret project: the company charter. If Dalio is the founding father and the Principles are the constitution, the charter will turn the latter into law. Setting them in stone guarantees that everything from who sets compensation to how the Principles can be changed is governed by a legal system.
All this work, the algos and the charter and getting the right management in place, is to help close what Bridgewater insiders call the Ray gap, or the difference between how Dalio has done things and how likely it is the staff he leaves behind can do the same.
That Dalio has become a billionaire contemplating Campbell’s hero myths might be surprising to those who knew him as a Long Island youngster. The son of a jazz musician and a homemaker, he was a poor student before eventually making his way to Harvard Business School. A few years later, he got fired from his job selling commodities futures at Sandy Weill’s Shearson Hayden Stone Inc. after having a stripper entertain his rancher clients at a conference; he also punched a department head in the face on New Year’s Eve.
Jobless, Dalio started Bridgewater in 1975 out of the second bedroom of his Manhattan apartment. Ever since he’s had a nose for steering his business toward ever more lucrative work. At first he advised companies on risk management. Then he managed bond and currency portfolios for them. (During the early days, he and Paul Tudor Jones, who’d also become a hedge fund legend, would sometimes discuss macroeconomic themes.)
Dalio’s views on the right way to manage money came after an investment experience in the early 1980s that almost sank him. He correctly forecast the Latin American debt crisis but wrongly predicted it would crush the U.S. economy and send stocks tumbling. The subsequent losses almost killed his business, and he was forced to borrow $4,000 from his father to meet household expenses. By 1991 he was back on track, opening his first hedge fund and charging clients 2 percent of assets and 20 percent of profits, which was soon to become the industry’s customary fee.
Still smarting from the wrong-way bet, Dalio slowly systematized his process and began codifying his investing principles, which he says keeps him from giving in to his biases or ego. The company eventually converted these into algorithms. Unlike quant shops, where computers find patterns amid market noise, Bridgewater takes a more old-school, macro approach to investing. Dalio, co-CIOs Jensen, 43, and Bob Prince, 58, and other team members start with an investment thesis—say, geopolitical risk leads to a rise in oil prices—and use copious back-testing to ensure the rule is timeless and universal. Only then do they add it to the algos, which spit out buys and sells across 150 liquid markets. If a wager doesn’t pay off (which happens about 35 percent to 40 percent of the time), they research what they missed. About 5 percent to 10 percent of algorithms are revised or added each year.
Bridgewater’s success matters more than most hedge funds because of its size. Along with the $83 billion in Pure Alpha investments, the company in 1996 was one of the first hedge funds to add a long-only strategy to its offerings with All Weather, which today oversees $56 billion. Bridgewater manages an additional $23 billion in its Optimal Portfolio that does a bit of both. About 350 of the largest institutions in the world, including sovereign wealth funds, central banks, and pension funds, have entrusted money to Bridgewater. Clients tend to concentrate their investments, too. Pennsylvania Public School Employees’ Retirement System, for instance, has invested almost one-tenth of its $53 billion in assets with the company. (It happens to mostly be in a passive inflation-indexed bond benchmark.) Two-thirds of investors have money in multiple funds.
Unlike other big hedge fund managers, Dalio talks up his moneymaking ability and his company’s success in public settings, where he speaks of the company’s “unique success” and likens employees to “intellectual Navy SEALs.” He’s especially fond of posting on LinkedIn. In his TED Talk, he reminds the audience that Bridgewater has made more overall dollars for its clients than any other hedge fund manager (which makes sense, given that he also manages a lot more money than anyone else).
Dalio blends his salesmanship with a hippie side—he’s been a huge supporter of Transcendental Meditation ever since the Beatles’ trip to India—that also includes a dash of Ayn Rand. “Self-interest and society’s interests are generally symbiotic: more than anything else, it is pursuit of self-interest that motivates people to push themselves to do the difficult things that benefit them and that contribute to society,” he wrote in a version of the Principles no longer available on the company’s website. “In return, society rewards those who give it what it wants. That is why how much money people have earned is a rough measure of how much they gave society what it wanted.”
By that measure, Dalio has given society what it wants to the tune of $14.6 billion—his fortune, according to the Bloomberg Billionaires Index. Over time, he’s learned that earning ever more money has diminishing benefits, he’s said, and in 2011 he signed the Giving Pledge, promising to donate more than half his fortune.