George Soros eclipsed by Dalio as the most successful fund manager
Ray Dalio eclipses George Soros as most successful fund manager
Bridgewater founder with ‘radically transparent’ approach to investing has the last laugh
guardian.co.uk, Friday 9 March 2012 22.57 GMT
Almost 40 years ago, a young Harvard graduate called Ray Dalio was trading futures at a brokerage called Shearson Hayden Stone. His boss was one Sandy Weill, who would go on to become famous as chairman and chief executive of Citigroup.
It was a promising start in finance. But the promise did not last long: Wall Street legend has it that after just a year in the job Dalio was sacked for taking a stripper to a client presentation.
Such a debut could have led to the rookie drifting off into obscurity – or just as easily have been the beginning of prolonged fame. Yet neither happened.
Instead, the son of a jazz musician sloped off and founded his own hedge fund, Bridgewater, from a two-bedroom apartment. It took three decades operating out of Westport, Connecticut before people outside the sector started to talk about Dalio once again.
The credit crisis was the trigger that propelled the money manager’s name back into Wall Street conversation, after providing him with the platform to outshine rivals and reap massive rewards.
This week the 62-year-old’s fortune was put at $10bn (£6.3bn) in Forbes’s latest list of billionaires. Last month he was lauded as the most successful hedge fund manager in history, after new rankings compiled by LCH Investments showed the $13.8bn that his Bridgewater Pure Alpha fund made in 2011 had propelled Dalio past the grandaddy of hedge fund investing, George Soros, in terms of returns to investors.
Since its 1975 inception the fund has booked gains of $35.8bn, while Soros’s Quantum fund (which has subsequently stopped managing funds for outside investors) made clients $31.2bn between 1973 and 2011. John Paulson’s now struggling Paulson & Co is in third place with $22.6bn of profits since 1994, despite its disastrous recent run.
But while Dalio’s fund is the world’s most successful (in total he has about $120bn under management), it is also the weirdest. His so-called “radically transparent” approach to investing involves filming internal meetings and allowing any employee the opportunity to openly criticise others – superiors and underlings alike.
It is a philosophy that can be as brutal as it is controversial and Dalio, a devotee of transcendental meditation, has described it all in a 123-page employee manual outlining his 210 “principles”.
The document includes aphorisms such as: “Teach your people to fish rather than give them fish.” Or: “Managers should not talk about people who work for them without those people being in the room. If you talk behind people’s backs at Bridgewater you are called a slimy weasel.”
We know all this because the manual was leaked in 2010 and in a belated show of transparency the company posted it on its website. Predictably, the publicity surrounding the approach has led to the firm being considered rather wacky, with some branding Bridgewater a cult.
That is not a description that Dalio warms to. When asked about the cult comparisons last year in an interview with CBS’s Charlie Rose, Dalio leaned forward and argued forcefully: “[Bridgewater is] the opposite. A cult means somebody is telling you ‘I believe this and follow it.’ It’s exactly the opposite of that, right? The number one principle is: don’t believe anything, think for yourself and now let’s go through a process of what is true, together. But we can’t stop that with ego. We can’t let that barrier stand in our way.”
Dalio changed his Bridgewater job title last year from chief executive to “mentor”, so he may have difficulty in removing all the ego from his office. But while the “principles” may make him appear slightly freaky, the undeniable success of Bridgewater may give Dalio the last laugh.
Having made his first investment as a 12-year-old using money earned working as a caddy for local golfers, he has earned billions for himself. He frequently tops other hedge fund performance league tables as well as the LCH list and while he has not called the financial crisis completely correctly, the money manager has as good a record as anyone and has displayed undeniable moments of foresight.
In 1999, five months after the euro was introduced to world financial markets, with the single currency trading at $1.05, he said: “We are sceptical long-term about the ability of European politicians to manage financial policy by committee, but now is not a good time to short the euro.” (If you’re being picky, the euro traded at 83 cents 18 months later, but then rose steadily for the next eight years and now trades at around $1.30.)
And here he is in 2007, as credit markets tightened: “Hedge funds in general are unlikely to provide much diversification to help protect against poor performance of traditional markets.”
It all looks rather shrewd now. Just don’t follow his advice on client presentations.
Dalio’s words of wisdom
• When a pack of hyenas takes down a young wildebeest, is this good or bad? At face value, this seems terrible: the wildebeest suffers and dies. Some people may even say the hyenas are evil. Yet this type of apparently evil behaviour exists throughout nature through all species and was created by nature, which is much smarter than I am, so before I jump to pronouncing it evil, I need to try to see if it may be good.
• The most common reason problems aren’t perceived is what I call the “frog in the boiling water” problem. Supposedly, if you throw a frog in a pot of boiling water it will immediately jump out. But if you put a frog in room-temperature water and gradually bring the water to a boil, the frog will stay in place and boil to death. There is a strong tendency to get used to and accept very bad things that would be shocking if seen with fresh eyes.
• Maintain “baseball cards” and/or “believability matrixes” for your people. Imagine if you had baseball cards that showed all the performance stats. You could see what they did well and poorly and call on the right people to play the right positions in a very transparent way.
• Probe deep and hard to learn what to expect from your “machine”. Know what your people are like, and make sure they do their jobs excellently. Constantly probe the people who report to you, and encourage them to probe you.