Seeking immortality is something that differentiates leaders, entrepreneurs, and artists from everybody else, says Jeffrey Sonnenfeld, a professor at Yale School of Management and author of The Hero’s Farewell: What Happens When CEOs Retire. Building institutions that can outlast them is the responsible course of action, he says.
“It’s good for an entity to outlive a single executive,” says Sonnenfeld, “and Ray is clearly trying on that immortal quest just like many others. While it’s questionable whether expansive personalities and egos can step away, it can happen if they find new missions and trust their successors.”
That’s not always easy. Michael Dell and Howard Schultz returned to their businesses after their companies strained under new management, for instance. Ralph Lauren and Bill Gates retain a hand in their businesses after passing the baton to successors. Rupert Murdoch even remains at the helm of his empire well past the age of 80. Elsewhere in the hedge fund industry, James Simons and David Shaw stand out as two founders who built companies that have succeeded after they bowed out.
As Dalio prepares Bridgewater for life without him, he faces a monumental task. He manages tens of billions of dollars and employs more than a thousand people. And what distinguishes his succession project from others is the breadth and scale of his efforts to ensure that his unorthodox culture remains a mandatory part of life at Bridgewater after he’s gone.
Working at the company’s campus in Westport, Conn. is so intense that the pine trees might as well be porcupines
The first step in Dalio’s exit strategy was selling stakes in Bridgewater. He once owned the entire company. He now has less than half and says he plans to reduce his share to between 10 percent and 20 percent. The rest is controlled mostly by about 200 employees. Jensen and Prince, each of whom holds about 5 percent, own more than most. A handful of institutions, including Teacher Retirement System of Texas and Ontario Municipal Employees Retirement System own minority stakes; so do Singapore’s sovereign wealth fund (GIC Private Ltd.) and the International Monetary Fund, according to people with knowledge of the matter. Bridgewater declined to comment.
You can glean important insights into the company through these holdings—namely, owners have done better than investors of late. Texas Teachers, which acquired 2.4 percent of Bridgewater in 2012, has seen a 12.1 percent annualized return on investment through September 2016, according to the pension fund. During that same period, an investment in Bridgewater’s main hedge fund gained about 1 percent annualized. At other hedge funds, investors have begun revolting against high fees paired with underwhelming results, saying that managers are getting rich at their expense and providing little in return. Bridgewater’s assets remain near their peak, while competitors including Jones and Alan Howard have lowered fees and experienced massive withdrawals.
What Bridgewater has done in spades, it seems, is put customer service first. Its client services group employs 200 people—one for every 1.75 clients—and they speak directly to CIOs. Those relationships may have helped keep customers loyal. Rosen of Angeles Investment Advisors credits Bridgewater for forging a collaborative spirit with its investors. Bridgewater will look at a client’s entire portfolio, analyzing how a specific event, whether it’s a huge drop in the stock market or a spike in oil, might play out. The company rarely gives straight-out advice, but rather supplies “frameworks” so clients can make better decisions.
Bridgewater also produces Daily Observations, musings on markets or economics, often with an historical bent, such as a 31-page look at good and bad ways countries have cut their debt or an 81-page treatise on the history of populism in 10 countries. Even though the papers don’t provide actionable investment ideas, most investors say they’re happy to receive such original material in their in-boxes. “When you speak in front of your board, they help make you look smart,” says Brad Alford, who worked at the Duke Endowment in the late 1990s and now runs Alpha Capital Management, a consultant search service in Atlanta.
Bridgewater has also managed its clients’ expectations well, telling investors that performance in its most popular fund can span anywhere from down 18 percent to up 36 percent. Over the main fund’s 26 years, its three losing years—down 3.1 percent, 5.7 percent, and 7.9 percent—are well within that range. Following rival-beating gains of 44.8 percent in 2010 and 25.3 percent in 2011, Bridgewater told clients most investments globally would enter a period of low returns.