Bridgewater Overhaul Explains New Hedge Fund Reality
By limiting the size of its funds, the firm is implying that it doesn’t have the confidence that it can always find opportunities for any amount investors care to give it. That wasn’t the case under founder Ray Dalio.
The hedge fund industry will never be the same.
Photographer: Takaaki Iwabu/Bloomberg via Getty Images
In October I wrote that the retirement of Ray Dalio, who founded Bridgewater Associates and ran it for almost half a century, signaled the end of an important era in the hedge fund industry. Dalio was the last of the great investors who started their funds in the 1970s, of whom many hedge fund stereotypes are still based. Now Bridgewater’s new managers are reshaping the firm to make it more similar to the new generation of hedge funds.
Dalio chose the most evocative name for his fund: Pure Alpha. Traditional asset managers and index funds generally deliver “ beta” exposure, which is the expected return the market gives to investors for passive exposure to major economic factors such as equity values and interest rates. Returns from “ alpha” are more valuable because they are uncorrelated with major market factors and thus are not pulled down by the crises that cause stock or bond crashes. Combining beta and alpha strategies can produce higher returns with less risk than passive exposure in traditional index funds.