Alpha Ray: How Bridgewater’s Founder Built an Empire — and a Cult of Personality
- When it comes to successful investment funds, everyone wants to know the secret sauce. Bridgewater Associates, founded in 1975 by Ray Dalio, is no exception. As of 2022, Bridgewater has posted the second-highest gains of any hedge fund since its inception.
- Ray Dalio, who began trading as a preteen, has no doubt enjoyed stratospheric success. But our guest, financial reporter Rob Copeland, says the company’s investment strategies may not be as scientific and systematic as it claims to be.
- What is behind Bridgewater’s meteoric rise, and why are ex-employees calling it a cult?
Before he wrote for the New York Times and the Wall Street Journal, financial journalist Rob Copeland cut his teeth covering the hedge fund industry for a trade publication called Absolute Return. Then (in the early 2010s), nobody could work that beat without covering the world’s biggest hedge fund — Bridgewater Associates and Ray Dalio, its enigmatic co-founder/CEO. (That’s still the case today, even though Bridgewater is currently the second-largest hedge fund globally.)
“Ray puts out what he calls ‘daily observations,’ macroeconomic notes I’m sure some of your listeners even receive now,” says Rob. “We very rarely wrote about them, but it piqued my interest one day. … Dalio had flipped his view on China. He had gone from bullish to fairly bearish. We wrote that up and Ray hit the roof.”
Dalio, who was by then a multibillionaire, phoned Rob and tried to walk back all the direct quotes Absolute Return published.
“It wasn’t a turn-off for me. It was sort of addicting,” Rob recalls. “You’ve got the world’s biggest hedge fund manager on the phone and he seems to be listening to your perspective. He’s agitated, but as a journalist, sometimes people are agitated by your work.”
Over the years, Rob kept writing about Dalio — “because the chasm between the Ray Dalio he was playing on TV, in TED Talks and in his books was so different from what I was hearing from people inside Bridgewater,” says Rob, who actually applied to the company himself in his early 20s. Who could blame him? Bridgewater not only pioneered the risk parity investment approach, but also managed to come out ahead during the Great Recession of 2008-9.
“To hear Ray Dalio tell it, I am an aggrieved job applicant on … an absolutely incredible revenge tour of 15 years,” Rob adds. “But it’s just a complete distraction. Ray universally dislikes independent thought, particularly by journalists.”
Rob says that’s not surprising, considering that Bridgewater has been called a “cult” by ex-employees and industry insiders in numerous publications, long before he even began covering Dalio and his company.
Today, Rob is an acclaimed reporter and the author of “The Fund: Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend.” Rob says he doesn’t have any personal animus toward Dalio, who threatened book’s publisher, Macmillian, with a multibillion-dollar lawsuit prior to its release. Remarkably, no actual suit was ever filed — more on that later — and Rob is inured to threats like these after more than 15 years in journalism. He has spent the last 10 years working on the bestselling book, hailed by Publishers Weekly as a “hugely entertaining depiction of unbridled wealth colliding with unhinged folly.”
On an Ideas Lab episode of Top Traders Unplugged (the last of 2023!), Rob tells host Kevin Coldiron that there are two versions of Dalio’s story: the one Dalio himself tells, which is that he built Bridgewater according to his personal philosophy, the so-called “Principles,” which include “radical truth” and “radical transparency.” The other story, the one that unfolds in “The Fund,” is far more complicated — and opaque.
Read on for highlights of Rob and Kevin’s fascinating conversation about Dalio and Bridgewater.
Please note that the allegations Rob makes are not my views or those of any members of the Top Traders Unplugged team.
Truth and transparency
“To be honest, I struggled to find the right adjectives to describe this book,” Kevin tells Rob. “Eye-opening for sure, even mind-blowing in part. But it’s also deeply thought-provoking because it forces us to confront deeper ideas of truth and transparency.”
The fungibility, so to speak, of those ideas underpins the compelling narrative Rob presents in “The Fund.” (He points out Dalio is literally an eccentric billionaire, but arguably much less so than Elon Musk, who once called Rob’s reporting “totally false,” a fact Rob proudly includes on his LinkedIn profile.)
Dalio, whose life is stranger (and more compelling) than fiction, came from humble roots. He began trading when he was 12 years old, with $300 and stock tips he gleaned as a caddy at a posh golf club. After a series of serendipitous events and relationships — including an informal mentorship courtesy of 1960s investment bigwig George Lieb and a fortuitous marriage to Barbara Vanderbilt Whitney (yes, those Vanderbilts and Whitneys), Dalio graduated from Harvard Business School, worked his way through a series of Wall Street jobs and built his firm from the ground up.
“He is incredibly charming in a way,” says Rob of his subject. “I’ve met him in person a number of times. He will look you in the eyes and spend hours telling you about ‘The Principles’ to the point where if he doesn’t believe it himself, then he deserves the Academy Award for Best Actor. If he believes it himself, which he is able to communicate so powerfully, it’s hard for you not to believe it, because who are you to say these aren’t the keys to his success?”
Principles and profits
According to Rob, Dalio began espousing his personal philosophy, aka “The Principles,” as early as 2005. But it wasn’t until 2017 that Dalio laid them out in his own bestselling book, which (according to its promotional copy) argues that “life, management, economics and investing can all be systemized into rules and understood like machines.”
In practice, Rob says, that played out in a way that’s just as dystopian as it sounds. “The Fund” is rife with detailed reporting about Dalio’s mercurial, authoritarian management style — one that often (allegedly) crossed the line into verbal abuse.
The “big reveal” for Rob during his research was that Ray Dalio was already a billionaire before he claimed “The Principles” as the basis of Bridgewater’s stratospheric success. Rob calls them “an effort by Ray to retrofit an overarching philosophical reason for his success when there’s absolutely no hard evidence of that.”
Kevin tells Rob that the book made him think of “Animal Farm,” George Orwell’s classic satire of Stalinism.
“At Bridgewater, all animals are equal, but some are more equal than others. I thought of that book a lot,” Rob replies.
Guts and grails
Rob is hardly the first reporter to note Dalio’s dogmatic worldview and narcissistic personality. But what might interest investors the most is that Bridgewater’s mysterious investment strategies are shrouded in mystery.
Although the company describes itself as a data-driven, systematic investment firm, there is little evidence of this claim. The New York Times included an abridged excerpt from “The Fund” upon the book’s publication in November 2023, in which Rob writes:
Of Bridgewater’s roughly 2,000 employees at its peak — and hundreds more temporary contractors — fewer than 20 percent were assigned to investments or related research. (The rest worked on operations tasks, including the expansion of Mr. Dalio’s “Principles.”) And of those investment staff members, many held responsibilities no more complicated than those of the average college student. They worked on economic history research projects and produced papers that Mr. Dalio would review and edit.
As for whether those insights made it into Bridgewater’s trading, most research employees knew not to ask, current and former investment employees said.
Only a tiny group at Bridgewater, no more than about 10 people, enjoyed a different view. Mr. Dalio and his longtime deputy, Greg Jensen, plucked the members from the crew of Bridgewater investment associates and offered them entry to the inner sanctum. In exchange for signing a lifetime contract — and swearing never to work at another trading firm — they would see Bridgewater’s inner secrets.
Mr. Dalio called the group of signees the Circle of Trust.
Rob goes on to make a compelling case that Dalio, who once said he found the “holy grail” of trading formulas, relies much more on gut instinct, charisma and intimidation than economic science.
“Successful firms spend hundreds of millions, if not billions, of dollars every year trying to find one small edge in the market they know will not exist forever, exploit it for as long as possible and then find the next one,” says Rob. “So the idea that Ray Dalio has hundreds of timeless and universal rules … is to me risible. And there’s a reason why they [Bridgewater] aren’t suing me: because they’d have to prove that I’m wrong — and I’m not.”
Discourse and dividends
There must be some tangible method to Bridgewater’s mad success, right? If there is, Rob hasn’t found it. And perhaps, now that Dalio has retired, the company will move beyond the founder’s influence. Or not: Reportedly, he still plays a role in crafting the company’s investment strategies.
Whatever Bridgewater’s fate, Rob argues that we have lessons to learn from his telling of Dalio’s story.
He thinks Dalio “weaponized” not only the “Principles” but his own celebrity — and that we should be wary of adopting values that deviate significantly from our own.
But Rob does think Dalio is a “great storyteller,” and that’s no small thing. Dalio’s reputation as a financial guru is part of the Bridgewater mystique. Whether or not the fund continues to post record returns every year, he has convinced his wealthy clients that their investments are in expert hands.
“There’s something incredibly appealing about knowing that your money is safe,” he says.
At Top Traders, we can’t verify or repudiate any of Rob’s reporting about Bridgewater and Dalio, but we can definitely agree with that.
This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.
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