Is Ray Dalio’s kingdom built to last?

| March 1, 2012 | 0 Comments

LCH Investments has just put out a ranking of the best people-driven hedge funds. Ray Dalio’s Bridgewater Associates comes out on top; one of its funds made $13.8 billion for investors last year and has beaten its peers by generating the most money since its inception. With this Dalio has replaced George Soros as the hedge fund king.

As you would expect of a successful investor, Dalio has strong ideas on the way things should be run. But what makes him unique is how far he has pushed his own life and management principles into the day-to-day business of Bridgewater Associates and its employees.  

The New Yorker called Bridgewater the “world’s strangest hedge fund”and New York Magazine asked whether it’s a cult. Here’s how it described things:

Dalio [...] is an adherent of “radical transparency,” a management theory that calls for total honesty and accountability. He’s also a longtime practitioner of Transcendental Meditation and has built its precepts on self-actualization into Bridgewater’s office culture. (He’s even brought in David Lynch, the film director and unofficial TM spokesman, to lead a seminar for his staff.) Dalio expects employees to openly criticize not just the cafeteria fare but also each other; behind-the-back gossip is strictly prohibited. “Issue logs” track mistakes ranging from significant (poorly executed trades) to small (one employee is said to have been issue-logged for failing to wash his hands after a trip to the bathroom) and can result in “drilldowns,” intense sessions—one insider compares them to a cross between a white-collar deposition and the Spanish Inquisition—during which managers diagnose problems, identify responsible parties (“RPs,” in Daliospeak), and issue blunt correctives. Other employees can withdraw recordings of these proceedings from the firm’s “transparency library.”

Dalio has his own manifesto, a 110-page book given to all Bridgewater employees that explains his “most fundamental life principles”. Paul Farrell thinks it’s nothing more than a warmed-over version of Ayn Rand’s ruthless capitalistic ideology. Judge for yourself — the whole thing is here.

Whether you believe that Bridgewater is a cult or not, it’s clear that Dalio’s philosophy has left a deep and wildly successful mark on the firm. He’s 62 years old — can his firm ever survive and thrive without him? Less eccentric funds have found it difficult to answer the succession question. How much more so for a fund so closely tied to one man’s beliefs? From Bloomberg:

“Hedge funds haven’t done a great job at succession planning,” said Myron Kaplan, a partner at New York law firm Kleinberg, Kaplan, Wolff & Cohen PC who advises hedge funds. “The key is to institutionalize the firm and change investors’ perceptions of the fund as a single guru’s shop.”

Dalio has already been working on a long-term plan to reduce his ownership stake. Just this month Bridgewater sold a non-voting stake to the Texas teachers’ retirement fund. In his principles he says that “future managers of Bridgewater will work in their own ways to determine what principles Bridgewater will operate by.” This may not work as smoothly as he thinks.

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Category: Investing