Bridgewater Associates

Bridgewater Associates LP
Limited partnership
Industry Hedge Fund
Founded 1975 (1975)
Headquarters Westport, Connecticut, U.S.
Area served
 Worldwide
Key people
 Ray Dalio (Founder, Chairman, co-CIO)
Bob Prince (co-CIO)
Greg Jensen (co-CIO)
David McCormick (co-CEO)[1] Eileen Murray (co-CEO)[2]
Products Pure Alpha
All Weather
Pure Alpha Major Markets
Daily Observations
AUM US$160 billion (2017)
Number of employees
 1,700
Website bwater.com

Bridgewater Associates is an American investment management firm founded by Ray Dalio in 1975. The firm serves institutional clients including pension funds, endowments, foundations, foreign governments, and central banks.

It utilizes a global macro investing style based on economic trends such as inflation, currency exchange rates, and U.S. gross domestic product. Bridgewater Associates began as an institutional investment advisory service, graduated to institutional investing, and pioneered the risk parity investment approach in 1996.

In 1981, the company moved its headquarters from New York City to Westport, Connecticut and currently engages 1,700 employees. As of 2017, it had US$160 billion in assets under management.[3]

History

The firm's history includes the pioneering of industry strategies such as: currency overlay, the separation of alpha and beta strategies,[4] the creation of absolute return products, and risk parity.[5] According to Financial News, the company was the fastest growing asset manager from 2000 until 2005 when it stopped accepting new accounts.[6] Its assets under management have increased by 25% each year during the 2001-2010 decade with employees at eleven times their year 2000 levels.[7] The company’s Daily Observations research is reportedly read by leaders of central banks and managers of pension funds around the world.[8]

1975-1990: Consulting, research, money management

Bridgewater Associates was founded by Ray Dalio in 1975 from an office in his Manhattan apartment. At that time, the business consisted exclusively of advising corporate clients and the management of domestic and international currency and interest rate risks.[9][10] The firm later changed its emphasis and began selling economic advice to governments and corporations such as Nabisco and McDonald's.[11]

The company began publishing a paid subscription research report called the Daily Observations which inspired McDonald’s Corp. and its main supplier to become clients in the early 1980s.[12] Another client was Banks of Mid-America and its treasury department director, Bob Prince, later joined Bridgewater Associates as co-CIO.[2] In 1981, the company moved its offices from New York City to Connecticut.[13]

View of lake and trees surrounding the corporate headquarters in Westport, Connecticut
View of lake and trees surrounding the corporate headquarters in Westport, Connecticut

The company's first account was funded by a US$5 million fixed-income investment through Hilda Ochoa-Brillembourg of World Bank in 1987.[14] In the mid-1980s, the firm changed its business focus from currency and interest rate management to global bonds and currencies for institutional investors.[11] As a fixed income and currency adviser to institutional clients, the company gained a reputation as a currency trader and a developer of techniques for overlaying currencies. In 1990, it launched a hedge fund portfolio using monies from Kodak and Loews Corporation[9] and began formally offering its currency overlay products to its clients.[15]

1991-present: Pure Alpha, All Weather, Pure Alpha Major Markets

Bridgewater Associates developed several "innovative investment strategies" during the 1990s such as inflation-indexed bonds, currency overlay, emerging market debt, global bonds and "super-long duration bonds". The firm also "pioneered the separation of alpha and beta" investments and developed a strategy called "alpha overlay" which involved a portfolio of "20 uncorrelated" investments, leveraged for risk or return and combined with cash or an investment market benchmark.[12]

The firm launched its Pure Alpha fund and began to market portable alpha investment strategies in 1991.[4] The Pure Alpha fund did well during the market's downturn of 2000 to 2003 and, as hedge funds became more popular, the company expanded its assets through its connections with various underfunded pension funds, some of which were already clients.[16] In 1992 the firm introduced its global bond overlay program.[7] In 1995, company executives participated in the discussions at the U.S. Treasury[17] and advised federal government on the development of inflation-indexed bonds.[18][19]

Bridgewater launched its All Weather hedge fund and pioneered the risk parity approach to portfolio management in 1996.[20][21] The firm's assets under management grew from US$5 billion in the mid-1990s to US$38 billion by the year 2003.[22] In June 2000, the firm was ranked as the best performing global bond manager for that year and the prior five years by Pensions & Investments magazine.[23] In 2002, the company was ranked by Nelson Information as the World's Best Money Manager in recognition of the 16.3% return on its International Fixed Income program.[24] The firm received the Global Investor Awards for Excellence-Global Bonds award in 2003.[22] The following year the company received the Global Pensions (magazine) Currency Overlay Manager of the Year award,[25] and 2 "best in class" awards from the PlanSponsor Operations Survey.[26]

In 2006, the company's flagship Pure Alpha fund began "returning money" to its clients in order to maintain its investment strategy and enforce its "capacity limit." The firm began moving all of its clients into alternative strategies (either its All Weather or Pure Alpha Major Markets funds), thereby eliminating the traditional investment approach from its portfolios.[27] That year it was honored by PlanSponsor Magazine with the Lifetime Achievement Award[28] and the Global Pensions magazine Currency Manager of the Year award[29] and the Money Management Letters, Public Pension Fund Award for Excellence and the Alternatives Manager of the Year award.[30]

By 2007, the firm's total assets under management grew to US$50 billion (from US$33 billion in the year 2000).[12] According to a 2007 article in Barron's magazine, "nobody was better prepared for the global market crash" than its clients and subscribers to its Daily Observations. The company "began sounding alarms..in the spring of 2007 about the dangers of excessive financial leverage."[31] The company's researchers reviewed the public accounts of most of the major financial institutions around the globe and found that estimated future losses due to bad debts totaled US$839 billion. In December, these conclusions were reported to the U.S. Treasury Department when company founder Ray Dalio met with U.S. Treasury Secretary staff and other White House economic advisers.[32] Bridgewater's Pure Alpha fund "spared its investors" from most of the stock market's "meltdown" in 2008.[33] However, this strategy was not successful in 2009 when economic growth responded faster than anticipated and the Dow Jones Industrial Average increased by 19% while the company’s Pure Alpha fund reportedly gained a mere 2% to 4%.[33] Bridgewater’s Pure Alpha II has posted a historic average return of 12 percent with only 3 losing years.[34] Senator John McCain visited the firm and addressed company employees during his 2008 presidential campaign.[35] The Teacher Retirement System of Texas (TRS) invested in $250 million in a stake in Bridgewater Associates Intermediate Holdings, LP.[36]

Ray Dalio, the company's founder, began using the term "d-process" in February 2009 to describe the deleveraging and deflationary process of the subprime mortgage industry as distinct from a recession.[31] That year, the company was termed the largest hedge fund in the U.S. and it received the Alternative Investment News 7th Annual Hedge Fund Industry's Lifetime Achievement award and PlanSponsor's Hedge Fund Manager of the year award.[37][38] When the U.S. gross domestic product faltered in 2010, the firm had significant gains on their investments in Treasury bonds and other securities, and in November founded the US$10 billion, Pure Alpha Major Markets fund which brought the company's total assets under management to more than US$100 billion.[32][33] In 2011 the firm received several honors. It was ranked number one on Institutional Investor's "world's top 100 hedge funds" list.[39] It received the Macro-Focused Hedge Fund Firm of the Year award[40] and the aiCIO Hedge Fund Industry Innovation Award.[41] Absolute Return + Alpha (AR) ranked the company number one in its Hedge Fund Report Card[42] and Billion Dollar Club categories.[43]

At the end of May 2016, Connecticut is expected to approve a plan which will give Bridgewater Associates $22 million in grants and loans in exchange for job training, job creation, and building renovations. The company also must agree to retain 1,402 jobs they already support in Connecticut. The company could also become eligible for as much as $30 million in urban tax credits.[44]

Investment philosophy

According to Ray Dalio, Bridgewater Associates is a "global macro firm".[45] It uses "quantitative" investment methods to identify new investments while avoiding unrealistic historical models.[15] Its goal is to structure portfolios with uncorrelated investment returns based on risk allocations rather than asset allocations. Additionally, the company is reported to accept funds only from institutional clients such as pension funds, foundations, endowments, and central banks rather than private investors.[10][14]

Separation of alpha and beta

The company divides its investments into two basic categories: (1) Beta investments, whose returns are generated through passive management and standard market risk, and (2) Alpha investments, whose goal is to generate higher returns that are uncorrelated to the general market and are actively managed. The principle of separating alpha and beta investments was introduced by Dalio in 1990 and gained the recognition of other equity managers beginning in the year 2000. The firm is reported to be the first hedge fund manager to separate alpha and beta investment strategies and offer dedicated investment funds for each.[12][46]

Systematic diversification

According to Bloomberg, Bridgewater uses an investing system that combines traditional diversification with "wager[s] on or against markets around the world" and attempts to invest in instruments and markets that do not "move in lock step" with each other.[10] To guide its investment strategies, the company's top executives have compiled hundreds of "decision rules" which are the financial corollary to the firm's employee handbook, Principles, and these investment guidelines have been incorporated into the firm's computer's analysis.[32]

Corporate affairs

Headquarters

Aerial view of the Bridgewater Associates corporate campus in Westport, Connecticut

In 1981, the company moved its headquarters 50 miles north of New York City to Wilton, Connecticut, and in the late 1990s it moved to a larger office space on a corporate campus in Westport, Connecticut.[13] As the company continued to expand, it became the sole tenant at the 22-acre campus. The firm's headquarters is described as retreat-like and is surrounded by the trees of a former nature reserve.[15] The campus contains three buildings made of "midcentury modern fieldstone and glass". Since 2000 its staff has grown from 100 to 1200 employees, and the firm has taken office space in three additional buildings in the area.[7] In an effort to consolidate its offices, the company made plans to build a 750,000 square foot headquarters in Stamford, CT about 15 miles from its present location in Westport, but cancelled the project in 2014.[47]

Employees

Bridgewater Associates grew from 100 employees in 2003 to 1,200 employees in 2011.[48][49] The company is reported to be one of the few hedge fund managers that hires its analysts and employees right out of college and from the annual pool of graduates from Ivy League schools.[50] Employees are transported daily in a "fancy" bus that ferries them from Manhattan to the company's Westport offices. According to an article in Bloomberg, "about a quarter of all new hires" leave within the first two years.[10] Those that remain are reported to receive "generous" compensation and form bonds with fellow employees that are "like family"[8] and the company's founder helps to pay for any employees that wish to learn the Transcendental Meditation technique.[51]

Dalio, the founder, relinquished his chief executive officer (CEO) title in July 2011 to take on the role of "mentor." The company's administration consists of three co-CEO's; Greg Jensen, Eileen Murray and David McCormick; the former undersecretary of the Treasury Department.[52] The company also has three co-CIO's (chief investment officers); Dalio, Bob Prince and Jensen (who is also co-CEO).[7] Jensen, the 37-year-old co-CEO, oversees the research programs at the firm and came to the company as a Dartmouth College intern about 15 years earlier.[53][54] Britt Harris, formerly of Verizon Investment Management, joined Bridgewater as co-CEO in November 2004 but left six months later. According to Dalio, the cultural fit was a problem, but Harris "is a superstar, with an absolutely fabulous character".[55] From 2010 until early 2013, Bridgewater's general counsel was James Comey, former United States Deputy Attorney General and Director of the Federal Bureau of Investigation from 2013 to 2017.[56]

Corporate culture

In 2005, Dalio saw the firm taking on hundreds of new employees and decided to create a handbook called Principles which was distributed to all employees. The publication is said to be part self-help book, part management manual, and part treatise on the mechanics of natural selection as they function in a business setting.[32] According to one trade journal, six years after the publication of "Principles", the firm's rapid expansion led to the institution of a "bizarre culture of criticism."[57] The company acknowledges that employees "often encounter culture shock" when they begin working there, and Dalio admits: "it's not for everyone".[32] According to the company's web site, employees are encouraged to be assertive, and discussions about disagreements and mistakes are considered an intentional part of the company's culture because they are felt to stimulate both learning and progress.[58]

A 2011 article in New York Magazine described the company as the "largest and indisputably weirdest hedge fund" because of its unwavering commitment to "total honesty and accountability" and minute detail in its corporate culture.[8] For example, Dalio encourages employees to do "whatever it takes to make the company great" and emphasizes transparency and openness in its decision making processes.[4][59] All meetings are recorded and can be viewed by any employee as long as the meeting topic is not proprietary.[57] In addition, Dalio says that he fosters "an extreme meritocracy of ideas" and asserts that decisions are made about investments without considerations of hierarchy. He says that any employee can respectfully say anything to anyone in the firm, but they must be prepared to be challenged in return.[55][60] The company's flat corporate structure aims to remove the barriers associated with traditional asset management firms, and qualities like stodginess and risk-aversion are discouraged.[28][61]

The company has been likened to a cult,[32] but Dalio denies that and insists that the firm is a dedicated "community".[7] An article in the New Yorker by John Cassidy says that "the word cult clearly has connotations that don't apply to an enterprise staffed by highly paid employees who can quit at any moment." Cassidy says the company is located away from other financial institutions and headed by a "strong-willed leader" and that employees use a "unique vocabulary".[32] One client, Bob Jacksha, chief executive officer of the New Mexico Educational Retirement Board, said of the firm: "Every investment manager has its own culture [and] some are more unique than others."[33]

References

Coordinates: 41°10′20″N 73°21′46″W / 41.17222°N 73.36278°W / 41.17222; -73.36278

  1. ↑ Williamson, Christine. "Ray Dalio to step down from co-CEO role as part of shakeup at Bridgewater". Pensions & Investments. Retrieved 21 January 2018.
  2. 1 2 Kishan, Saijel (September 14, 2011). "Hedge Funds Facing Succession Challenge as Kovner Hands Off Caxton to Law". Bloomberg L.P. Retrieved October 3, 2011.
  3. ↑ "How Ray Dalio Built the World's Biggest Hedge Fund". Fortune. Retrieved 2018-03-04.
  4. 1 2 3 Schultes, Renée (September 11, 2006) Bridgewater seeks competitive advantage through lateral thinking, Financial News. Retrieved April 7, 2010.
  5. ↑ Dunstan, Barrie (November 20, 2008). Investment Legends: The Wisdom That Leads to Wealth. John Wiley & Sons. pp. 131–148. ISBN 978-0-7314-0837-5. Retrieved July 27, 2011.
  6. ↑ (September 11, 2006)Bridgewater is Fastest Growing Asset Manager, Financial News. Retrieved October 2011.
  7. 1 2 3 4 5 Celarier, Michelle; Lawrence Felefingne (July 2011). "Ray Dalio's Radical Truth". Institutional Investor. Retrieved March 2, 2011.
  8. 1 2 3 "Pursuing Self-Interest in Harmony With the Laws of the Universe and Contributing to Evolution is Universally Rewarded by Kevin Roose, New York, April 10, 2011
  9. 1 2 David Snider; Chris Howard (February 16, 2010). Money Makers: Inside the New World of Finance and Business. Palgrave Macmillan. pp. 224–. ISBN 978-0-230-61401-7. Retrieved July 31, 2011.
  10. 1 2 3 4 Teitelbaum, Richard (November 29, 2005). "Bridgewater's Dalio Lures Pension Funds With 13.3 Percent Gains". Bloomberg L.P. Retrieved March 22, 2010.
  11. 1 2 The World According to Ray Dalio, DerivativesStrategy, October 2000. Retrieved March 30, 2010.
  12. 1 2 3 4 Williamson, Christine (February 4, 2008)Hedge Funds: Living large Pensions&Investments. Retrieved March 26, 2010.
  13. 1 2 "Wilton, Conn. – Economist Dalio Foresees Greatest Crisis Since '29". Wilton Bulletin. September 22, 1982.
  14. 1 2 O'Keefe, Brian (March 19, 2009). "Inside the World's Biggest Hedge Fund". Fortune. Retrieved March 22, 2010.
  15. 1 2 3 Brewster, Deborah (January 8, 2008) The alpha and beta of a lone manager, Financial Times.
  16. ↑ Tietelbaum, Richard (November 29, 2005). "Dalio lures pension funds". Bloomberg. Retrieved October 28, 2011.
  17. ↑ Schlesinger, Jacob (September 26, 1996). "U.S. Bonds To Be Tied To the CPI - Long-Awaited Project Will Be Sold Only In 10-Year Note Form". Wall Street Journal. Archived from the original on September 29, 2011. Retrieved August 10, 2011. "Bridgewater Associates Inc., a Connecticut money manager that participated in the Treasury discussions"
  18. ↑ Fromson, Brett D. (December 24, 1996) Washington Post, "Treasury Delays Debut Of Inflation-Indexed Notes" December 24, 1996
  19. ↑ Schlesinger, Jacob and Zuckerman, Gregory (December 24, 1996) Treasury Delays Sale of Bonds Tied to Inflation, Wall Street Journal
  20. ↑ Appell, Douglas (November 30, 2009) Bridgewater under the Weather P&I Online
  21. ↑ Schwartz, Stephanie (April 2011)Risk Parity: Taking the Long View IP&E, retrieved June 2011
  22. 1 2 (2003) Global Investor Awards for Excellence Bridgewater Associates official web page. Retrieved October 28, 2011
  23. ↑ Fromson, Brett D. (December 24, 2000). "The TSC Streetside Chat: Ray Dalio of Bridgewater Associates". TheStreet.com. Archived from the original on April 17, 2008. Retrieved August 25, 2011.
  24. ↑ (October 20, 2002) PEP Briefs Accounting Today
  25. ↑ Global Investor, Global Pensions, 2004. Retrieved March 26, 2010.
  26. ↑ "2005 Investment Manager Operations Survey: Bridgewater Associates". PlanSponsor. 2005. Retrieved August 8, 2011.
  27. ↑ Williamson, Christine and Appell, Douglas (August 23, 2003) Bridgewater adds liquidity to Pure Alpha clone, Pensions & Investments
  28. 1 2 "The Pursuit of Excellence". PLANSPONSOR. December 2006. Retrieved April 12, 2010.
  29. ↑ Global Pensions Awards winners announced, Global Pensions, January 24, 2006. Retrieved March 22, 2010.
  30. ↑ (April 3, 2006)Alternatives Manager of the Year, Money Management Letter, Retrieved March 22, 2010.
  31. 1 2 Ward, Sandra (February 9, 2009) Recession? No, It's a D-process, and It Will Be Long Barrons. Retrieved March 18, 2010
  32. 1 2 3 4 5 6 7 Cassidy, John (July 25, 2011) Mastering the Machine New Yorker. Retrieved July 2011
  33. 1 2 3 4 Corkery, Michael and Eder, Steve, June 22, 2011 Bridgewater Goes Large Wall Street Journal, pg C1-C2
  34. ↑ Dalio’s Quest to Outlive Himself, Bloomberg Markets, 10. August 2017
  35. ↑ Pazsniokas, Mark (April 10, 2008) A Tough Audience Investment Workers? Pointed Questions Pierce McCain?s Stump Lines Hartford Courant
  36. ↑ Bridgewater and Strategic Investing, American Public Pensions are Becoming More Innovative SWFI, February 26, 2012. Retrieved July 2014.
  37. ↑ "7th Annual Hedge Fund Industry Award Winners". Alternative Investment News. June 26, 2009. Retrieved August 7, 2011.
  38. ↑ Zachery, Kouwe (September 2, 2009) Bridgewater Leads in Investor Survey, The New York Times. Retrieved March 22, 2010.
  39. ↑ Opalesque (September 2, 2009). "Bridgewater remains largest US hedge fund".
  40. ↑ (June 202011) Hedge Fund Industry Awards Institutional Investor. Retrieved October 28, 2011
  41. ↑ aiCIO 2011 Award Winners aiCIO Announces 2011 Asset Management/Servicing Award Winnerst, September 26, 2011. Retrieved September 2011.
  42. ↑ Tunick, Britt Erica (September 2011). "Hedge Fund Report Card 2011" (PDF). Absolute Return + Alpha. Archived from the original (PDF) on April 25, 2012. Retrieved October 28, 2011 – via Elliott Management Profiles.
  43. ↑ Allen, Katrina Dean (March 2, 2011)Billion Dollar Club Absolute Return. Retrieved October 2011
  44. ↑ Dixon, Ken (23 May 2016). "Republicans criticize Malloy over $22 M grant to Bridgewater". CTPost. Retrieved 25 May 2016.
  45. ↑ Roose, Kevin (October 21, 2011). "I Think I Did Everything Right". The New York Times. Retrieved October 28, 2011.
  46. ↑ Leim, Harry (2007) 2020 Vision: Investment Wisdom for Tomorrow, page 19, Pub:Mercer 2007
  47. ↑ MacEachern, Frank (June 27, 2014) Westport-Based Bridgewater Nixes Move to Stamford Stamford Daily Voice
  48. ↑ (February 2003)Global bonds winner 2003: Bridgewater Associates Investor Magazine. Retrieved October 2011
  49. ↑ Murray, Eileen (Interview: Summer 2011)Interview with Eileen Murray Archived October 15, 2011, at the Wayback Machine. Leaders Magazine retrieved October 2011
  50. ↑ David Snider; Chris Howard (February 16, 2010). Money Makers: Inside the New World of Finance and Business. Palgrave Macmillan. p. 141. ISBN 978-0-230-61401-7. Retrieved July 31, 2011.
  51. ↑ Comstock, Courtney (October 25, 2010). "Ray Dalio Is Too Modest To Admit He Returned 38% YTD Using Transcendental Meditation". Business Insider.
  52. ↑ Levin, Bess (July 18, 2011)Bridgewater Associates Truth Probings Are About to Get Turbo Charged Deal Breaker
  53. ↑ (October 25, 2011) 40 Under 40 CNN Money. Retrieved October 2011
  54. ↑ Abad-Santos, Alexander (August 5, 2011) Dartmouth Student and Bridgewater Clash on Recruiting Atlantic Wire. Retrieved October 2011
  55. 1 2 Williamson, Christine (June 27, 2005) A quick exit for Bridgewater's Harris Ex-Verizon Investment chief leaves alternatives firm after 5 months Pensions & Investments Magazine
  56. ↑ "AP Sources: Obama Preparing To Name Comey To FBI". NPR. AP. May 29, 2013. Archived from the original on May 30, 2013. Retrieved May 30, 2013.
  57. 1 2 (March 3, 2011) BridgewatersRay Dalio: There’s a Cultural Misunderstanding Westport Now. Retrieved October 28, 2011
  58. ↑ Dalio, Ray. Bridgewater Associates: Culture and Principles, Bridgewater Company Website. Retrieved January 10, 2008.
  59. ↑ Stern, Stefan (January 15, 2008) Time to toughen up and embrace the joys of conflict Financial Times. Retrieved March 22, 2010.
  60. ↑ Taub, Stephen (June 28, 2011)Euromoney Institutional Investor, Bridgewater’s Alpha is up 11 Percent This Year, June 28, 2011, "Dalio also encourages subordinates to challenge their superiors, and expects every employee to express blunt honest opinions"
  61. ↑ Stern, Stephan (January 15, 2008) Time to Toughen Up and Embrace the Joys of Conflict Financial Times. Retrieved October 2011
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