Ray Dalio’s Bridgewater Associates might become the first hedge fund to hand over the reins to an algorithm.
At least that’s the takeaway from Bloomberg’s latest profile of the hedge fund billionaire, who founded Bridgewater Associates, presently the world’s largest hedge fund with more than $160 billion AUM. The profile offers an update on the firm’s difficulties in formulating a succession plan, as well as its founder’s quest to automate many of its management functions.
Of course, in addition to personnel issues, Dalio’s vision for Bridgewater’s future relies heavily on artificial intelligence. His efforts to creating a proprietary artificial-intelligence software called “the Book of the Future” that will eventually help manage the firm were first detailed in a WSJ profile published late last year. As the firm’s returns have sagged in recent years, investors and the media have started to question Dalio’s commitment to “radical transparency.”
Once lauded for his unique vision, many now question whether Dalio’s commitment to “radical transparency” – the firm’s founding principle – current and former employees are speculating that the intensive scrutiny it entails is to blame for the firm’s unending management shakeups. Although Dalio has said he’d like to stay involved in the firm’s investment decisions until he dies, the founder’s 10-year plan has at times resembled “musical chairs,” according to Bloomberg. Since 2010, the firm has had no fewer than five CEOs.
These concerns were underscored by the departure last year of Apple executive David Rubenstein. As Bloomberg explains, Rubenstein may have helped Steve Jobs create the iPod, one of the most successful consumer products of all time, but he had difficulty adjusting to Bridgewater’s culture and left the firm after only 10 months.
And while Bridgewater’s culture is certainly unique, the storied tech executive was fully aware of the challenges he’d be facing before joining the firm.
“Even before joining, Rubinstein, 61, attended and watched hours of meetings and shadowed senior executives. Within four months, however, it was already clear he was struggling to adapt, according to people at the company. Rubinstein declined to comment.”
Rubenstein was hired after Greg Jensen – once believed to be de facto Dalio successor – abruptly stepped down from his co-chief executive officer role, which he’d shared with Eileen Murray. Jensen’s departure was marred by rumors that his relationship with Dalio had soured after Dalio accused him of violating the firm’s commitment to transparency by criticizing its dear leader behind his back.
Murray and David McCormick now run Bridgewater as co-CEOs. McCormick is serving a second tour in of duty in the role after deciding to pass on an offer to join President Trump’s administration as deputy secretary of defense.
Dalio’s incredibly hopes to build Bridgewater into an “everlasting institution” with a culture that will endure for “100 years” are in part to blame for the difficulties, Bloomberg suggests.
“As if that process weren’t daunting enough, the ultimate goal of Dalio’s successors is nothing short of monumental: not only to ensure that the firm’s culture lasts for the next 100 years but also that Bridgewater becomes an ‘everlasting’ institution.”
Bloomberg offers several amusing nuggets about Dalio that speak to his succession-planning troubles. For example: Dalio’s favorite book is Joseph Campbell’s classic “The Hero With A Thousand Faces.” Whatever impact the book has had on his investing philosophy, it’s unsurprising (and maybe even a little comical) that a self-aggrandizing hedge-fund billionaire would liken himself to Gilgamesh.
“The hero comes back from this mysterious adventure with the power to bestow boons on his fellow man,” Campbell wrote. Those words spoke to Dalio, the founder of the world’s largest hedge fund, who knew exactly what he wanted to pass along: his Principles.”
That boon, according to Dalio, is Bridgewater’s legendary principles, which have been refined and codified in a list of more than 200 aphorisms. For the first time, Dalio is planning to make his “principles” available to the general public in a 600-page book due out later this year.
“I believe in the idea-meritocratic process,” Dalio continues. “I believe in specifying one’s principles clearly. I believe in radical truth and radical transparency to achieve meaningful work and meaningful relationships. I wish it existed all over. I wish it existed in Washington. It’s the reason for our success—not me. I want to make it clear to pass it along, and then disappear.”
However, many current and former employees have complained that Dalio’s commitment to “transparency” has in reality cultivated a big brother-like atmosphere at the firm, which is known for relentlessly cataloguing its employees’ flaws and offering unceasing waves of criticism to help weed out junior employees.
In a complaint filed with the National Labor Relations Board that was leaked last year to the New York Times, seven former Bridgewater employees described the firm as having “a culture of fear and paranoia.”
In a description of the circumstances that may have led to the lawsuit, Bloomberg describes how the firm’s employees are required to relentlessly provide feedback based on a series of attributes, some of which have “funny-sounding” (read: utterly ridiculous) names.
“Most meetings are recorded. Employees must rate one another on one of about 75 attributes - some with funnysounding names such as Designing the Movie Script and Willing to Touch the Nerve - about 15 times a week to create data to confirm that the right people are in the right jobs and to help them better interact with one another. Dalio says that as much as 30 percent of the population couldn’t tolerate a Bridgewater-esque environment.”
Employee stats are then displayed in a “baseball card” format.
“In Westport, workers carry iPads to grade their colleagues on attributes such as Assertive & Open-Minded or Dealing With Ambiguity. They are required to “actively” log these assessments, known as Dots. The Dot Collector then rates employees’ strengths and weaknesses weighted by the rankers’ believability - how much their views can be trusted. The company has collected about 3 million Dots to date, or about 2,000 per employee. Each employee has a Baseball Card, with ratings on 75 or so attributes, and anyone can see anyone else’s card.”
In a recent TED talk, Dalio employed one of his favorite recruiting gimmicks: The idea that “radical transparency” means that anyone at Bridgewater is open to criticism, including him.
“In his TED Talk, for example, he shows an email from an underling giving him a D-¬minus for his preparedness—and makes clear that he relishes the employee’s openness. Not everyone’s opinion is equal, however, and the company runs on what Dalio calls believability-weighted decision-making.”
Undercutting this notion, however, is the fact that Dalio’s “believability” rankings – among the most important metrics used at the company – have consistently been among the highest in the firm, suggesting that many employees are still reluctant to criticize their boss.
“Dalio’s Baseball Card shows him to be among the most believable in the company, so his opinion carries more weight than most. His rating, though, isn’t so high that other believable employees can’t overrule it, according to the company. Former employees who left within a few years put it more bluntly: Everyone has to bend to Ray’s way.”
Like many other macro funds, Bridgewater’s returns have faltered as the centrally-planned economy created by the Federal Reserve and a cabal of global central banks has sapped the market of volatility.
“Returns at the hedge fund’s flagship product have faltered, just like at other so-called macro managers. Since the beginning of 2012, Bridgewater’s Pure Alpha II has posted an annualized return of 2.5 percent, according to a document reviewed by Bloomberg Markets, a far cry from its historic average of 12 percent. It’s down 2.8 percent this year through July. (A smaller Bridgewater hedge fund, Pure Alpha Major Markets, has fared better, as has the company’s long-only product.)”
Yet, despite the fact that central bankers have engineered possibly the biggest threat to the viability of Dalio’s firm in its four-decade existence, in an article penned last month, the Bridgewater founder argued that investors should be thanking the Fed. The central bank, according to Dalio, has been “inexplicably’ maligned when it should be appreciated for engineering a “beautiful” deleveraging. As far as we can tell, this "deleveraging" never occurred.
We wonder if any of his employees had the gall to call out their boss for publishing an article that was so detached from reality.
- artificial intelligence
- Bloomberg L.P.
- Bridgewater Associates
- Central Banks
- Economy of the United States
- Federal Reserve
- Hedge fund
- Musical Chairs
- National Labor Relations board
- New York Times
- Pure Alpha
- Ray Dalio
- Ray Dalio
- Steve Jobs
- Trump’s administration
- US Federal Reserve
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