The Bridgewater Hedge Fund was started by Ray Dalio back in 1975. It has $94 billion in assets and is purported to be the largest hedge fund in the world. Rather than catering to wealthy private investors, it primarily manages money for large institutions and pension funds.
Like most of the biggest hedge funds, it is located in Connecticut. It manages its All Weather Hedge Fund using a risk parity approach. What this means is that it varies its asset allocation based on the expected risk of an asset class. A less risky asset gets a higher allocation, while a riskier asset gets a lower allocation and leverage may be employed to equilibrate the levels of risk and return.
The Bridgewater Hedge Fund gets a lot of credit for being early in predicting the subprime crisis and the global economic panic that later ensued. Dalio created the term D-process to describe the deflationary process of deleveraging brought on by the collapse of the global debt bubble.
Is Bridgewater a Cult?
Dalio is a bit of a controversial figure and some accuse him of running his hedge fund like a cult. But his proponents disagree, saying that the culture of his firm is the key to his investing success. He has written a book of principles that every employee is expected to read. And his firm holds 360 degree review sessions where nothing is held back. He believes that this process helps bring individual weaknesses to light so that they may be corrected.
Obviously, it is difficult to have all of your flaws pointed out to you in front of a large group of people and these sessions can get emotional at times, but it’s hard to argue with the performance that this generates for his hedge fund.
Bridgewater reportedly has an employee turnover rate of 30% per year. This is unusually high for a large hedge fund. Many former employees say that it is a very difficult place to work at and it can be a demoralizing place, because nothing is held back. No one is allowed to talk behind the back of another person. But the firm defends its practices, saying that when you interview former employees you are more likely to hear the bad than the good things about the firm.
How Does Bridgewater Generate Its Returns
According to Dalio, it generates its impressive returns by understanding the economy better than anyone else. By understanding economic history his firm is able to predict how future economic trends will play out and he is then able to position his hedge fund accordingly. And so far his firm has done quite well by capitalizing on this knowledge.