One of the most well-known writers on Wall Street has taken aim at the world’s largest hedge fund firm — and the firm is fighting back.
Jim Grant, editor of the widely-read publication Grant’s Interest Rate Observer, wrote in an October 6 piece that he is bearish on Ray Dalio’s Bridgewater Associates, which manages more than $160 billion in assets on behalf of some of the world’s largest public pension plans, sovereign wealth funds, and other significant institutional investors. A Bridgewater spokesman countered in an e-mailed statement to Institutional Investor on Thursday that the Grant’s story is “inaccurate and misinformed.”
In the piece, entitled “The face on the Wall Street milk carton,” Grant cited a number of factors for his skepticism, including recent lackluster performance and management turmoil in the front office. He also took issue with several of the firm’s relationships with its service providers — criticisms that some industry participants, including well-known alternative investment consultancy Aksia, said were far off-base.
The article was first published last week but gained traction on Twitter on Wednesday and Thursday after being circulated via email among industry watchers.
“Nobody knows when today’s credit-enhanced, central-bank-infused, interest-rate-inflated updraft in asset prices will run its course, still less the name of the firm with which history will associate that inflection point,” Grant wrote. “For the latter distinction, Grant’s is penciling in the name of the firm that Dalio built.” (Grant did not return a request for comment.)
In its statement, Bridgewater responded, “This reporting is devoid of proper fact checking, lacks a basic understanding of the rules, regulations and processes of the securities industry, and is demonstrably false.”
[II Deep Dive: Inside the Walls of Bridgewater Associates]
Aksia, which advises institutions on their investments in hedge funds and other alternative investment strategies, said the story’s interpretation of specific disclosures Bridgewater has made about its service providers betrayed a lack of understanding about “disclosure filings, as well as how the plumbing of the hedge fund industry works,” according to Jim Vos, chief executive of Aksia. The firm has clients who are invested in Bridgewater.
Grant also critiqued Bridgewater’s recent performance, writing that the firm has lately produced “mediocre returns” at the same time that Dalio has been spending significant time promoting his new book, Principles, via media appearances and Twitter. Those appearances include an interview at the CNBC/Institutional Investor Delivering Alpha conference and a video interview with Institutional Investor.
Bridgewater’s growth in recent years has been remarkable, with its hedge fund assets rising from about $36 billion at the start of 2008 to $122 billion at the beginning of this year. (Firm-wide assets have fallen slightly from $169 billion in early 2016.) The firm’s main hedge fund produced a gain of 8.7 percent in 2008, at the height of the global financial crisis, when the average hedge fund fell nearly 20 percent. That performance sent Bridgewater’s assets soaring and boosted Dalio’s profile — while also bringing attention to the firm’s controversial corporate culture.
Grant holds a dim view of that culture — the basis for Principles — which espouses an “idea meritocracy” that is reached through an ideology known as “radical transparency.” In practice, that translates to employees regularly critiquing one another, including Dalio, and tape recording such meetings for later review. In his Delivering Alpha interview, Dalio defended the firm’s practices, saying he has tried to foster a culture of “thoughtful disagreement” and that the firm’s culture is partially responsible for its success.
Grant counters that while such eccentricities are tolerated when a firm is making money, “After big showings in 2008 and 2010, Bridgewater has lately performed no better than the typical struggling hedge fund.”
II’s sister publication Alpha recently reported that while Bridgewater’s risk parity fund, All Weather, had gained 8.5 percent for the year through September, its two Pure Alpha funds, which constitute 45 percent of its assets, have lost 1.28 percent and 2.36 percent each. That’s after the funds posted gains of just 2 percent and 2.4 percent in 2016.
“On the one hand, the man who displaces George Soros at the top of the heap as the all-time net money-maker, as Dalio is said to have done in 2015, is allowed to tape-record all the meetings he wants (it’s just what Ray does),” Grant wrote. “On the other hand, if that same man, in a setting of mediocre returns and declining assets under management, chooses to persist in tape-recording his meetings, people may start to wonder if something isn’t off. We say that something is.”
Grant further points to the firm’s recent management turmoil, noting that “six different individuals by our count” have served as either co-CEO or co-chairman since Dalio declared his intention in 2011 that he would step down as CEO.
Grant, who is known for making bold predictions, concluded the piece with this one: “Many are the mysteries and contradictions of the world’s largest hedge fund. We will go out on a limb: Bridgewater is not for the ages.”
