- Bridgewater’s Pure Alpha strategy, which managed about $75.8 billion as of the end of September, was down through that month, according to client documents.
- The strategy is long stocks, short bonds, and long emerging-market currencies versus the dollar and the euro, according to the documents.
- Bridgewater now has one quarter to turn around performance. If it finishes down for 2017, it would be the first down year in over a decade.
NEW YORK CITY — The world’s largest hedge-fund firm, Bridgewater Associates, is facing the possibility of an annual loss in its biggest strategy for the first time in more than a decade.
Bridgewater’s Pure Alpha II has lost about 2% after fees this year through September, according to client documents, a slight gain from end of July, when it was down 2.8%. The strategy has posted gains each year since at least 2005.
The Pure Alpha II fund is the biggest of the firm’s Pure Alpha strategies, running what it calls 18% volatility, with about $36 billion as of the end of September, according to a person familiar and documents.
There are other Pure Alpha funds and managed accounts that run multiple volatility levels deploying a similar strategy.
For example, a smaller fund running the same strategy, the Pure Alpha 12% Strategy, is down about 1% this year through September, according to documents. That fund manages about $10 billion, according to a person familiar with the numbers. Pure Alpha 12% is potentially facing its first lost since 2000, when it lost about 3.5%, according to client documents.
The Pure Alpha strategy managed about $75.8 billion in total as of the end of September, according to a person with knowledge of the figures — a huge chunk of the firm’s $160 billion in assets.
Bridgewater’s Pure Alpha was long stocks and short bonds at the end of the third quarter, according to a document. The strategy is also
- long bonds in emerging markets,
- long emerging-market currencies against the dollar and euro,
- long the dollar against developed currencies,
- long oil and other industrial commodities, and
- long gold.
These positions reflect public statements Dalio has made, as well as research notes to clients over recent months. For instance, in August, founder Ray Dalio told clients that they should put 5% to 10% of their assets in gold. And Dalio has said that the Federal Reserve may be making a mistake in moving to raise rates, and that “the risks are asymmetric on the downside.”
Bridgewater manages money for some of the world’s largest public and private pensions, university endowments, and other institutional investors. Dalio has recently been promoting his book, “Principles,” about his firm’s infamously eccentric culture. Dalio has spoken with Business Insider and a number of other media outlets over the past several months while promoting the book at Wall Street conferences and on LinkedIn and Twitter.
Dalio did not respond to messages seeking comment. Prosek Partners, Bridgewater’s external public-relations firm, declined to comment.
Bridgewater tells clients that its Pure Alpha 12% strategy should underperform the stock market when it rises, and outperform when the market loses. In the client documents, the firm said that the average market return for the S&P 500 during positive quarters is 6%, whereas Pure Alpha’s average return is 2.4%.
Pure Alpha 12% is underperforming that spread. It’s down -1% through September compared to a 12.5% gain in the S&P 500 over the same period. In recent years, it has delivered returns of between 0.6% and 3.5% per year, according to client documents.
Bridgewater’s other big strategy, All Weather, has fared better, gaining about 7% this year through September after fees, documents show. The strategy made a 3.5% gain in the third quarter. Its returns have been volatile, however, in recent years.
Here’s All Weather’s annual performance:
- 2016: +10%
- 2015: -7%
- 2014: +7.5%
- 2013: -4%
- 2012: 15%
The All Weather strategy managed $53 billion as of the end of September, according to the person with knowledge of Bridgewater’s assets.