BY AZAM AHMED
Chris Ratcliffe/Bloomberg NewsRay Dalio, the head of Bridgewater Associates, at Davos this week. Bridgewater is bullish this year on gold as a hedge against inflation.The world’s biggest hedge fund is also one of the best performers.
Bridgewater Associates, which manages nearly $120 billion, posted returns of 23 percent in 2011 — a year when the average hedge fund portfolio lost 5 percent.
Against the backdrop of fear over European debt and stagnant global growth, the hedge fund, led by one of Wall Street’s more enigmatic titans, Ray Dalio, sidestepped the mess. The fund did it with bets on United States Treasuries, German bonds and the Japanese yen, according to people familiar with the firm’s investment strategy, who spoke on condition of anonymity because the information is private.
Such performance adds up. Over the last 20 years, Bridgewater had annualized returns of 14.7 percent, amounting to $50 billion of gains for investors. Over the same period, the Standard & Poor’s index of 500 stocks returned about 8.7 percent a year.
A big chunk of Bridgewater’s gains came in recent years, a volatile period that felled many funds. As the financial crisis wreaked havoc, Bridgewater notched positive, albeit modest, returns in 2008 and 2009. The next year, the firm had gains of 45 percent versus about 10 percent for the average hedge fund.
The firm has managed to post big numbers even as assets have swollen, defying conventional wisdom and industry experience. Investors poured money into Paulson & Company in recent years, after the founder, John A. Paulson, earned billions of dollars betting against subprime mortgages. Assets at Paulson topped $38 billion at the beginning of 2011, but many of his portfolios suffered last year, with one of the main funds losing 50 percent.
Bridgewater has been able to avoid that fate, in part, because it follows a go-anywhere strategy. The fund’s managers assess the political, economic and regulatory environments around the world, and then make bets using commodities, currencies and other assets.
“It’s become a more macro world,” said Charles T. Cassidy of Cambridge Associates, a consulting firm that advises more than 900 investors with more than $3 trillion in overall assets.
This year, Bridgewater is bullish on gold as a hedge against inflation. The managers are said to believe that governments will need to print more money to help reduce mounting sovereign debt, which could hurt the dollar but help gold. Bridgewater is also betting against the Australian dollar and several emerging-market currencies.
The success comes as Bridgewater finds itself under the microscope for its peculiar culture and odd rules. Mr. Dalio, a graduate of Harvard Business School, is a fervent disciple of radical transparency, a set of beliefs that preaches the pursuit of truth at all costs. For instance, midlevel employees can criticize top management if they think a certain market position is foolish.
In an embodiment of his principles, Mr. Dalio wrote a roughly 120-page treatise, called “Principles,” that is part diary, part philosophical musing and part self-help guide. New employees are required to read it, and it is available to the public online. Mr. Dalio, the son of a homemaker and a jazz musician, writes of his poor grades in high school and a subpar ability to remember names or grasp foreign languages.
Bridgewater’s office in Westport, Conn., has a Big Brother vibe, employees say. Overhead videocameras tape employees throughout the day. To root out problematic behavior, employees are subjected to withering critiques from co-workers. These sessions are recorded and, in the interest of transparency, anyone can pull a copy of the video from the hedge fund’s library.
Former employees say that while it can be an intense and unpleasant place to work, the intellectual environment is invigorating. Ideas are tested vigorously for their soundness. And employees are constantly pushed to improve their investment skills, even if that can be painful at times.
In the wake of some negative publicity that portrayed the firm as strange and inflexible, Bridgewater has begun an unofficial image campaign. Last year, Mr. Dalio appeared on CNBC, where he called the reports “a misunderstanding” and said they had “affected employment.”
Bridgewater also began conducting focus groups at Ivy League schools with students bound for Wall Street. Participants in the 90-minute sessions received $100 gift certificates for voicing their opinions on the firm. In true Bridgewater spirit, they were asked to be as honest as possible.
“Bridgewater has done an extremely good job with its culture, where they challenge each other openly to come up with the truth,” said Dick Del Bello, a senior partner at Conifer Group, a brokerage firm and hedge fund administrator. “Their track record over 20 years is pretty compelling.”
Kevin Roose contributed reporting.
