Bridgewater Associates’ three main funds each eked out a small gain in September. But with three months to go in the year, the Westport, Connecticut, firm’s two main macro hedge funds are still deeply in the red.
For example, the Pure Alpha I fund posted a small, 0.3 percent gain in September, trimming its loss for the year to 6.7 percent. Pure Alpha II gained 0.5 percent last month, its third straight profitable month, but it returned only about 1.6 percent in the third quarter. As a result, the fund is still down 10.2 percent for the year.
On the other hand, All Weather, Bridgewater’s risk parity fund, rose 1 percent last month and about 4 percent in the third quarter. It is up 14.1 percent for the year to date.
Bridgewater founder Raymond Dalio has described All Weather as “a strategic asset allocation mix, not an active strategy.” Funds like All Weather have been accused in the past of increasing stock market volatility by selling stocks during wider sell-offs so they can maintain their asset balance with bonds.
It is not clear which trades drove the funds’ performance for the past few months. We earlier reported that in the first half of the year, Bridgewater was hurt by long positions in Japanese and European equities and a short bet against the Japanese yen, but made money from a short position in the British pound in the second quarter, according to an investor.
Interestingly, entering the third quarter, the Pure Alpha funds were heavily net short. For example, Pure Alpha II was 194 percent long and 355 percent short, for a total exposure of 549 percent and a 161 percent net short position.
At the Delivering Alpha conference in New York on September 13, Dalio indirectly addressed the fund’s exposure levels. “Everybody’s long,” he told the audience while sitting on a panel with former Treasury secretary Timothy Geithner. “You know, everybody’s almost leveraged long. Right? That’s an exposure. So I think that it depends how you play the game. And there will be opportunities. And the important thing is whether you also make money in the good times and the bad times.”
Remember, Pure Alpha surged 14.5 percent in 2008, when many equity-oriented hedge funds suffered double-digit losses. “There’s a crosscurrent right now that’s going on, right?” Dalio said at Delivering Alpha. “The crosscurrent is the pushing of liquidity and all that liquidity causing asset prices to rise and so on.”
Dalio told the audience he doesn’t think the Federal Reserve should be raising interest rates now given the overall state of the economy, however. “The risk is all on the downside,” he warned. “We’ve never been in a world like this before.”
Bridgewater is the world’s largest hedge fund firm. At the beginning of the year, it managed more than $104 billion in hedge fund assets. Last month the firm said it had raised an additional $22.5 million.
Bridgewater is not the only hedge fund firm whose macro funds are losing money this year. Andrew Law’s New York–based Caxton Global Investments lost 1.7 percent for the first three quarters of the year. Brevan Howard Capital Management’s flagship Brevan Howard Master Fund fell 0.88 percent in September and isdown about 3.36 percent for the year to date. Through September 30, Tudor Investment Corp.’s Tudor Global BVI Fund was off by about 3.5 percent for the year.
