Bridgewater Associates, the world’s largest hedge fund firm, earned approximately $2 billion in management fees alone from its hedge funds in 2016, based on a roughly 2 percent average management fee, in a year when the funds produced gains of less than 3 percent.
Bridgewater, a macro-oriented investment firm founded by Raymond Dalio, now manages some $160 billion in total assets, of which roughly $104 billion was in hedge funds at the start of 2016. Its main hedge funds were profitable in December. As a result, they all finished the year with gains after losing money for much of 2016. Bridgewater declined to comment.
The firm’s Pure Alpha I fund gained about 1.7 percent last month, finishing the year up 2.1 percent. The fund has posted low-single-digit returns in each of the past five years, ranging from a low of 0.6 percent in 2012 to a high of 3.5 percent the following year.
Pure Alpha II, meanwhile, finally moved into the black for the first time since January 2016, gaining 2.6 percent or so last month. As a result, that fund was up 2.5 percent for the year. It has posted gains ranging between 0.8 percent and 5.2 percent in each of the past five years.
Pure Alpha is Bridgewater’s flagship strategy. Launched in 1991, the $65 billion strategy accounts for about 45 percent of Bridgewater’s total assets under management and has little correlation to stock market indexes. Pure Alpha All Weather, Bridgewater’s risk parity fund, gained more than 2 percent last month and finished the year up 11.61 percent. This was its best year since 2012, when it rose 16.5 percent. The strategy accounts for 40 percent of Bridgewater’s total assets under management.
It is not known exactly what drove gains in December. However, on several occasions Dalio has warned about a slow-growing economy and earlier predicted the multidecade bond rally is over. In September 2015, Dalio also warned that returns across many asset classes would average only about 3 percent to 4 percent over the next decade.
As recently as early October 2016, he stressed in a speech that we are in an abnormally slow growth environment and that “monetary policy tools will be much less effective going forward.”
However, one week after the U.S. presidential election in November, Dalio sounded a more optimistic theme in a letter to clients, explaining that he thinks an ideological shift to the right will create a better environment for business and the markets. “Donald Trump is moving forcefully to policies that put the stimulation of traditional domestic manufacturing above all else, that are far more pro-business, that are much more protectionist, etc.,” he added at the time.
Dalio has often courted controversy, particularly where his firm’s unusual corporate culture is concerned. He has lashed out at various media outlets for their coverage of his firm, airing his grievances in letters to clients and social media posts. Dalio’s most recent target: the Wall Street Journal, which he accused of publishing “intentional distortions.” His motivation for writing the column — initially published on his LinkedIn page — stems from the December 22 WSJ article that asserted that Bridgewater is trying to develop software which “could dole out GPS-style directions for how staff members should spend every aspect of their days, down to whether an employee should make a particular phone call.”
Dalio criticized the paper for coming to conclusions about the firm’s culture based on interviews with 12 current or former employees, given that the firm employs closer to 1,500 people. He also lamented that the writers of the article did not include certain information he deemed to be very important.
“To me, fake and distorted media are essentially the same problem in different degrees,” he says in a letter dated January 3. “This is not just a fringe media problem; it is a mainstream media problem. And while it is widely recognized, there is no discussion underway about how to rectify it.”
