The question for Bridgewater is whether it can retain whatever secret sauce was behind its exceptional run while jettisoning the principles from Dalio’s era.
, signalled 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.
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. But pure alpha is a promise, not a strategy. If there aren’t good opportunities in convertibles, it can look elsewhere. Dalio’s fund never limited investment, suggesting he had confidence that he could always find opportunities — or hire people who could find opportunities — for any amount investors cared to give him.
Dalio’s other big fund, All Weather, is a pure beta fund, far more diversified and levered than traditional index funds, and is managed with the intention of providing acceptable returns even in major market crashes. This is also being capped, although the types of investment it makes are available in almost unlimited quantities.
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