In 2008, a disastrous year for many of Bridgewater’s rivals, the firm’s flagship Pure Alpha fund rose in value by nine and a half per cent after accounting for fees.
Last year, the Pure Alpha fund rose forty-five per cent, the highest return of any big hedge fund. The discussion in the conference room moved on to Spain, the United Kingdom, and China, where, during the previous week, the central bank had raised interest rates in an attempt to slow inflation. We’ve talked about this before.” After an awkward silence, Jack tried to defend himself, saying that he thought he had been asked to give his views. Eventually, the young employee said that he would go away and do some careful calculations.
Dalio cut him off: “Are you going to answer me knowledgeably or are you going to give me a guess? Last year alone, he earned between two and three billion dollars, and reached No. But what distinguishes him more from other hedge-fund managers is the depth of his economic analysis and the pretensions of his intellectual ambition.
” The young man, whom I will call Jack, said he would hazard an educated guess. He is very keen to be seen as something more than a billionaire trader.
Indeed, like his sometime rival George Soros, he appears to aspire to the role of worldly philosopher.
In October, 2008, at the height of the financial crisis, he circulated a twenty-page essay immodestly titled “A Template for Understanding What’s Going On,” which said the economy faced not just a common recession but a “deleveraging”—a period in which people cut back on borrowing and rebuild their savings—the impact of which would be felt for a generation.
Ray Dalio, the sixty-one-year-old founder of Bridgewater Associates, the world’s biggest hedge fund, is tall and somewhat gaunt, with an expressive, lined face, gray-blue eyes, and longish gray hair that he parts on the left side.
When I met him earlier this year at his office, on the outskirts of Westport, Connecticut, he was wearing an open-necked blue shirt, gray corduroy pants, and black leather boots. In search of profitable opportunities, Bridgewater buys and sells more than a hundred different financial instruments around the world—from Japanese bonds to copper futures traded in London to Brazilian currency contracts—which explains why it keeps a close eye on Greece.
He looked a bit like an aging member of a British progressive-rock group. In 2007, Dalio predicted that the housing-and-lending boom would end badly.
After a few pleasantries, he grabbed a thick briefing book and shepherded me into a large conference room, where his firm was holding what he described as its weekly “What’s going on in the world? Of the fifty or so people present, most were clean-cut men in their twenties or thirties. A colleague began describing how the European Central Bank had just bought some Greek bonds from investors at a discount to their face value—a move that the speaker described as a possible precursor to an over-all restructuring of Greece’s vast debts. He said, “Here’s where you are being imprecise,” and then explained at length what a proper debt restructuring would entail, dismissing the E. B.’s move as an exercise in “kicking it down the road.” Dalio is a “macro” investor, which means that he bets mainly on economic trends, such as changes in exchange rates, inflation, and G. Later that year, he warned the Bush Administration that many of the world’s largest banks were on the verge of insolvency.
This line of analysis wasn’t unique to Dalio, but almost three years later, with economic growth stagnating again, it does not seem off the mark.
Many hedge-fund managers stay pinned to their computer screens day and night monitoring movements in the markets. He spends most of his time trying to figure out how economic and financial events fit together in a coherent framework. The life cycle is like a machine.” His constant goal, he said, was to understand how the economic machine works.
“Almost everything is like a machine,” he told me one day when he was rambling on, as he often does. “And then everything else I basically view as just a case at hand.