Bridgewater Associates
Bridgewater Associates, LP 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. As of 2023, Bridgewater was the fourth-most profitable hedge fund in history in absolute dollar returns. The firm 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. It employs about 1,300 people.
History
Bridgewater's history includes pioneering industry strategies such as currency overlay, the separation of Alpha and Beta strategies, the creation of absolute return products, and risk parity. According to Financial News, the company was the fastest-growing asset manager from 2000 until 2005, when it stopped accepting new accounts. Its assets under management increased by 25% each year from 2001 to 2010, with employees reaching 11 times their 2000 levels. The company's Daily Observations research is reportedly read by leaders of central banks and managers of pension funds worldwide.1975–1990: Consulting, research, money management
Ray Dalio founded Bridgewater Associates in 1975 in 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. The firm later changed its emphasis and began selling economic advice to governments and corporations such as Nabisco and McDonald's.Bridgewater began publishing a paid subscription research report, the Daily Observations, which inspired McDonald's Corp. and its main supplier to become clients in the early 1980s. Another client was Banks of Mid-America, whose treasury department director, Bob Prince, later joined Bridgewater Associates as co-CIO. In 1981, the company moved its offices from New York City to Connecticut.
Bridgewater's first account was funded by a $5 million fixed-income investment by Hilda Ochoa-Brillembourg of World Bank in 1987. In the mid-1980s, the firm changed its business focus from currency and interest rate management to global bonds and currencies for institutional investors. 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 and began formally offering its clients currency overlay products.
1991–2006: Pure Alpha, All Weather
Bridgewater 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 involves a portfolio of "20 uncorrelated" investments leveraged for risk or return and combined with cash or an investment market benchmark.The firm launched its Pure Alpha fund and began to market portable alpha investment strategies in 1991. The Pure Alpha fund did well during the market's downturn from 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. In 1992, the firm introduced its global bond overlay program. In 1995, company executives participated in the discussions at the U.S. Treasury and advised the federal government on the development of inflation-indexed bonds.
Bridgewater launched its All Weather hedge fund and pioneered the risk parity approach to portfolio management in 1996. The firm's assets under management grew from $5 billion in the mid-1990s to $38 billion by 2003. In June 2000, Pensions & Investments magazine named Bridgewater the best-performing global bond manager from 1995 to 2000. In 2002, Nelson Information named the company the World's Best Money Manager in recognition of the 16.3% return on its International Fixed Income program. The firm received the Global Investor Awards for Excellence-Global Bonds award in 2003. The next year, it received the Global Pensions Currency Overlay Manager of the Year award and two "best in class" awards from the PlanSponsor Operations Survey.
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, thereby eliminating the traditional investment approach from its portfolios. That year it received PlanSponsor Magazine
2007–2022: Pure Alpha Major Markets, Ray Dalio retires
By 2007, the firm's total assets under management grew to $50 billion. 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. Bridgewater "began sounding alarms...in the spring of 2007 about the dangers of excessive financial leverage". 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 $839 billion. In December, these conclusions were reported to the U.S. Treasury Department when Dalio met with U.S. Treasury Secretary staff and other White House economic advisers. Bridgewater's Pure Alpha fund "spared its investors" from most of the stock market's "meltdown" in 2008, but this strategy was unsuccessful 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 only 2% to 4%. Bridgewater's Pure Alpha II has posted a historic average return of 10.4%, with only three losing years. John McCain visited the firm and addressed company employees during his 2008 presidential campaign.Dalio 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. That year, the company was called the largest hedge fund in the U.S. and received the Alternative Investment News 7th Annual Hedge Fund Industry's Lifetime Achievement award and PlanSponsor's Hedge Fund Manager of the year award. When the U.S. gross domestic product faltered in 2010, the firm had significant gains on its investments in Treasury bonds and other securities, and in November founded the $10 billion Pure Alpha Major Markets fund, which brought the company's total assets under management to more than $100 billion. In 2011, Bridgewater received several honors. It was first on Institutional Investor's "world's top 100 hedge funds" list. It received the Macro-Focused Hedge Fund Firm of the Year award and the aiCIO Hedge Fund Industry Innovation Award. Absolute Return + Alpha ranked it first in its Hedge Fund Report Card and Billion Dollar Club categories. The Teacher Retirement System of Texas invested $250 million in a stake in Bridgewater Associates Intermediate Holdings. The firm's total funds in early 2012 were around $120 billion.
Between 2014 and 2016, the Regents of the University of California withdrew $550 million from Bridgewater Associates due to concerns about Bridgewater's future leadership. In 2016, Connecticut approved $22 million in grants and loans via a program initiated by Governor Dannel P. Malloy in exchange for job training, job creation, and building renovations, with the agreement that the firm would retain the 1,402 jobs it supported in Connecticut. The company also received $30 million in urban tax credits. In 2016 the firm managed about $150 billion.
In 2017, Dalio retired as co-CEO. In September 2017, Bridgewater announced plans to launch an investment fund in China with the Chinese government's approval.
In October 2017, Grant's Interest Rate Observer, founded by Jim Grant, published "The Face on the Wall Street Milk Carton", an article by Grant and Evan Lorenz that sharply criticized Bridgewater. It claimed Bridgewater engaged in questionable practices such as potential conflicts of interests in lending money to auditing firm KPMG and having 91 former Bridgewater employees working at Bank of New York Mellon, the custodial bank for Bridgewater. The article became "the talk of Wall Street", and Bridgewater denied any impropriety, saying the article lacked basic fact-checking and knowledge about hedge funds. A week after publication, Grant issued an apology in print and live on CNBC, retracting parts of the story and saying, "Bridgewater is a secretive and eccentric firm and I let my suspicions of that get in the way of our ordinarily comprehensive due diligence."
In June 2018, Bridgewater announced to clients and employees that it would change its corporate structure and become a partnership. By June 2018, the Ontario Municipal Employees Retirement System, Singapore's sovereign wealth fund, and the International Monetary Fund had invested in Bridgewater Associates.
In 2020, Bridgewater reported hefty losses due to COVID-19-related market volatility, with the pure Alpha II fund losing 18.6% as of August 2020. During the pandemic, Bridgewater Associates bet against European companies. Losses for 2020 were $12.1 billion.
In December 2021, after 11 months in the doldrums, Bridgewater posted a 7.8% return, its best annual performance since 2018. From July 2012 to August 2021, Bridgewater underperformed the S&P 500.
In January 2022, Nir Bar Dea, a retired major and platoon leader in the Israeli Defense Forces, and Mark Bertolini were announced as co-CEOs. In the volatile bear market of the first half of 2022, the firm's Pure Alpha II fund posted a 32% return. Bridgewater finished the year with AUM of $126.4 billion.
In July 2022, a "Defense Alpha" strategy was launched to protect investors during bear markets. It accumulated $800 million by the next year.