2020 has been a bad year by most accounts — including Ray Dalio’s. His $148 billion hedge fund, Bridgewater Associates, has faced a number of issues this year: an 18.6% drop in its flagship fund, staff cuts, investors pulling out a net $3.5 billion, and a lost arbitration fight with two ex-staffers.
While Bridgewater has seen dips in the past, 2020 may be the year the hedge fund loses its reputation as the biggest, and therefore, the best. Due to key missteps in management, Dalio may not hold his reputation as the king of hedge funds.
Bridgewater’s flagship fund, Pure Alpha II, generally gains value each year. In 2018, for example, it grew 14.6%, largely because Bridgewater forecasted the December market drop in time. In 2019, Bridgewater failed to get bullish, Pure Alpha II ended the year down 0.5%.
But with the surprise of the COVID-19 pandemic came heavy losses. March saw the biggest monthly drop in the firm’s history. As of August, the fund is down 18.6%. To put that in perspective, Pure Alpha is an indicator of the firm’s overall health, and produces average returns of 11.5% per year. According to a report from Bloomberg, Dalio himself worked 70 hours a week in the wake of mounting losses to repair the damage.
Staff cuts
After layoffs in December 2019, Bridgewater has kept its staff relatively lean, according to LinkedIn data. As of September 2020, there were just over 1,700 employees, a nearly 17% drop from the same time last year. July saw an unusually high number of layoffs, with several dozen employees in the research and client services departments being let go over Zoom, according to the Wall Street Journal.
Job listings have also decreased in the wake of the pandemic, by as much as 73% month-over-month. Bridgewater slashed listings in March, and the number still hasn’t bounced back. Bridgewater has stated that the firm doesn’t want to welcome new employees virtually, effectively choosing not to expand its workforce until the end of the pandemic.
Management mistakes
As if those losses weren’t enough, former Bridgewater staffers have accused Ray Dalio of prioritizing his public image (and his 2017 bestseller, “Principles”) over the firm, as well as sticking to outmoded practices.
Bridgewater’s rivals — Brevan Howard Asset Management and Caxton Associates among them — have posted gains in the double digits, which makes Dalio’s failure to bring returns all the more glaring. Though the firm prides itself on its forecasts, other firms like Renaissance Technologies use a more quantitative approach. Dalio isn’t interested in adding to Bridgewater’s computer models, insisting that they’re up to snuff.
While Bridgewater is known for its unique culture of radical transparency, that hasn’t stopped former employees from complaining about their treatment at the firm. Former co-CEO Eileen Murray sued the firm in July over unequal pay due to gender discrimination. In late 2019, Murray left the firm, but it wasn’t until discussions over her severance package went awry that she went forward with a lawsuit. Murray said that the firm’s offers were lower than what lower level male employees were earning.
On top of that, Bridgewater lost an arbitration dispute against two former employees, Zachary Squire and Lawrence Minicone, who started their own fund after leaving the company. Bridgewater alleged that the two had used trade secrets to operate their new fund, but it was later found that Bridgewater had fabricated and withheld evidence in the case.
The problems keep piling up, but Dalio remains confident.
“We are the largest hedge fund for a reason,” Dalio recently told Bloomberg Television. “We have never had a significant downturn, all positive years, but we knew that there would come a day. We missed the pandemic going down and that is the reality.”
Dalio asserted his confidence in the firm, and his leadership, adding, “we are operating in the same way we have always operated.”
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