The world's biggest hedge fund (pg. 3)

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Brian O'Keefe, senior editor

Bridgewater's confidence in the Pure Alpha system is so great that a couple of years ago Dalio did something rare on Wall Street - turn away money. By the end of 2005, Dalio and his team felt that they were reaching the limits of their investment capacity. They decided it was time to stop taking new accounts and focus exclusively on their best strategy. Much of the money they were managing was segregated into portfolios for, say, global bond exposure using a more traditional approach, rather than Pure Alpha. So they gave their clients the opportunity to either transfer their money to Pure Alpha or withdraw it, if the portable alpha approach didn't fit their institutional mandate.

In the end Bridgewater did lose a few clients but created room to add more money from its existing ones. These days, in addition to the $38.6 billion in the Pure Alpha fund, Bridgewater has $17.9 billion in a portfolio called All-Weather, which Dalio originally created for his family trust. All-Weather is a "passive" fund designed to provide a long-term return comparable to that of a 60/40 mix of stocks and bonds, but with less risk (last year it was down 20%). For investors willing to take more risk, there is also a Pure Alpha II fund that makes the exact same bets as the flagship but with half again as much volatility.

'Either a cult... or the happiest place on earth'

A couple of years ago, Dalio surveyed his rapidly growing firm and decided that he needed to codify his value system so that there would be a model for working and managing the Bridgewater way. So he sat down to write an outline of his principles. The result is an extraordinary 62-page document that every employee is required to study. (Sample tidbit: "At Bridgewater people have to value getting at the truth so badly that they are willing to humiliate themselves to get it.")

"If you took five organizational psychologists, locked them in a room, and told them to create the perfect blueprint for a corporate culture, this is about what they would come up with," says Bob Eichinger, a retired consultant who has spent five decades working with companies on how to manage talent and now works part-time for Bridgewater. "He's trying to design a culture in which people with talent have the freedom to perform."

The result of that design feels pretty radical compared with the typical corporate environment. In keeping with his identity as a hyperrealist, Dalio is committed to total transparency. So, for instance, every meeting is taped and kept on file. Blunt and frequent feedback is required, including "drill-down" sessions that probe into why employees failed at tasks. Managers aren't allowed to evaluate an employee's performance unless he or she is present. Because Dalio believes mistakes are valuable learning tools, every time something goes wrong employees are required to file a memo in the so-called Issues Log. And because Dalio is passionate about the meritocracy of ideas, subordinates are encouraged to argue with their superiors - and the superiors are required to encourage it. "We hate egos," he says.

If young employees - and loads of recent Ivy League grads with 99th-percentile SAT scores roam the halls - need a reminder of the potential opportunity afforded by that meritocracy, they need look no further than Greg Jensen, 34, the head of research and the third voice, along with Dalio and Prince, in the firm's weekly investment strategy meetings. Jensen started at Bridgewater as an intern directly out of Dartmouth and rose quickly through the ranks. "I love that your contribution here gets evaluated on a logical, principled basis rather than through the prism of a power base," he says.

Not surprisingly, the intense culture is not for everybody. "It's either a cult with mind control or the happiest place on earth, depending on whether you buy into it," says one former employee. Even some happy current employees say that there was an initial adjustment period and admitted that aggressively candid feedback wasn't always fun. But several spoke of how empowering such an open approach can be, and a few even offered testimonials for how embracing a policy of radical clarity had improved their personal lives.

More to the point, perhaps, is the fact that Dalio's system gives him the results he's looking for. He says he is perfectly comfortable having his assertions challenged at all times. In fact, he craves it. "I draw my conclusions," he says, "and I say, 'Please shoot holes in this. Tell me where I'm wrong.' People tend to think that my success, or whatever you want to call it, has been because I'm a really good decision-maker. I think it is actually because I'm less confident in making decisions. So in other words, I never know anything really. Everything is a probability."

And that's what keeps him alert to ever-changing conditions. "If I had to make lots of long-term bets, my track record would be much worse than it is," he says. "The beauty of my position is that I have the ability to change my mind tomorrow."

REPORTER ASSOCIATE Doris Burke contributed to this article. To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.