The biggest hedge fund in the macro game, a $40 billion beast, is looking a lot like an also-ran.

It’s lagged behind peers over the past eight years, and a roughly 2% decline in 2019 is shaping up to be one of its worst years on record, according to people familiar with its performance. Yet the behemoth, Pure Alpha II, is the flagship of none other than billionaire investor Ray Dalio.

That’s right, Ray Dalio -- founder of Bridgewater Associates and, to his many admirers on and off Wall Street, celebrated author of “Principles,” his 600-page manifesto for success that has sold 2.2 million copies since its publication in September 2017. The tome, an unlikely crossover hit that’s been praised by celebrities from Bill Gates to Sean “Diddy” Combs, was recently turned into an illustrated version for kids.

Rarely has a money manager’s stature with the investing public seemed so at odds with their recent record as an investor. With “Principles” still in the spotlight, Pure Alpha II’s performance usually goes unmentioned.

Following peak returns of 45% in 2010 and 25% in 2011, the fund’s performance has struggled. Dalio’s flagship has returned an annualized 3.8% since the start of 2012, even with a 15% gain last year. That places it behind standouts such as Jeff Talpins’s Element Capital Management and Tudor Investment Corp. for the period, and it’s the same story over the past three years, according to data compiled by Bloomberg.

Of course, Bridgewater isn’t alone in trailing the markets for much of this decade. In recent years, macro managers have found it hard to make big profits trading in their usual fare of government bonds, currencies, commodities and stock indexes. In their heyday, these funds regularly produced double-digit gains. Bridgewater has racked up an annualized 11.4% since its start in 1991. (Paul Tudor Jones and Louis Bacon, who both started in the 1980s, have done even better.)

​The difference between Dalio and his peers is investor response to the recent performance. In many cases, clients have fled. Perhaps the hardest hit has been Brevan Howard Asset Management, where assets peaked at more than $40 billion in 2013. It now manages about $7.5 billion. Bacon, who founded Moore Capital Management, said last month he was stepping back from his duties in part because of low returns.

By contrast, Pure Alpha II is closed to new capital and has a waiting list of about $5 billion, according to a person with knowledge of the matter. Investors credit Dalio’s reputation, along with savvy marketing and first-rate customer service.

It’s easy to see the allure of Dalio and his firm. While outsized earlier successes created a stellar reputation, there’s also the mystique of the unorthodox culture at Bridgewater. Dalio runs the industry giant nestled in the woods of Westport, Connecticut, following a set of about 200 principles, which are the subject of the bestseller. The most central is “radical transparency,” a demand that employees be brutally honest with one another. All meetings are taped and archived for future study and discussion.

“Bridgewater has just become such an institutional name,” said John Culbertson, president and chief investment officer of Context Capital Partners, which invests in startup managers. “It’s very hard to get fired for allocating capital to Bridgewater because of who they are and their reputation.”

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