| Raymond Dalio, Bridgewater Associates (Bloomberg) |
Raymond Dalio’s Westport, Connecticut–based Bridgewater Associates continues to chip away at the early-year losses suffered by its flagship Pure Alpha macro funds. But the funds still have a long way to go to get back to break-even for the year.
The firm’s Pure Alpha Fund II, which is also known as Pure Alpha 18%, and Pure Alpha I, known as Pure Alpha 12%, each gained a little less than 1 percent in August. The latter had gained more than 4 percent in July.
The two funds were also profitable in the first few days of September. As a result, through September 5, Pure Alpha II is now down 9.4 percent for the year, while Pure Alpha I is down 6.1 percent.
Pure Alpha is Bridgewater’s flagship strategy. Launched in 1991, the $65 billion strategy has little correlation to the stock market indexes. Pure Alpha accounts for about 45 percent of Bridgewater’s total assets under management.
In the first half of the year, Bridgewater was especially hurt by long positions in Japanese and European equities and a short bet against the Japanese yen, according to an investor in two Pure Alpha funds. On the other hand, a short position in the British pound proved to be a profitable trade in the second quarter.
Meanwhile, All Weather, the firm’s controversial risk parity fund, has posted positive performance all year. (Some risk parity strategies have been accused of increasing market volatility by selling stocks during broad declines to maintain their portfolios’ overall risk weights among its various asset classes.) Dalio has previously described All Weather as “a strategic asset allocation mix, not an active strategy.”
The strategy was roughly flat in August but tacked on a small gain in the first few days of this month. It is now up 13.5 percent as of September 5, making it among the better-performing hedge funds this year. All Weather has posted annualized returns of 8.2 percent since its inception in 1996. It accounts for 40 percent of Bridgewater’s total assets under management.
In each of the four previous years, both Pure Alpha funds have posted modest gains, ranging between less than 1 percent and the midsingle digits. Interestingly, though, during that four-year period Dalio personally made a total of $4.8 billion, as chronicled by Alpha’s annual Rich List ranking of the world’s highest-earning hedge fund managers.
The two funds have fared much better than that over their full lives, however. Pure Alpha II has compounded at 11.9 percent since 1991, while Pure Alpha I has an 8.8 percent annualized return since its 1991 inception.
As they entered July, the funds were heavily net short. Pure Alpha II was 194 percent long and 355 percent short, for a total exposure of 549 percent. That works out to a 161 percent net short position. In stark contrast, at the end of the second quarter of 2015, Pure Alpha II was 40 percent net short. Now we’ll see how well it fares with this much more bearish stance.
It has been a tough year in other ways for the world’s largest hedge fund firm. Earlier this summer Bridgewater was embroiled in a high-profile sexual harassment dispute when a former employee filed a complaint against his supervisor and described the firm as a “cauldron of fear and intimidation.” The individual, Christopher Tarui, withdrew the complaint when he left the firm to join private equity giant Kohlberg Kravis Roberts & Co.
Bridgewater and Dalio declined to comment for this story. Dalio is a featured speaker at this year’s Delivering Alpha conference, scheduled for September 13.
