The Unsurprising Failure of the Largest Hedge Fund in the World

michael edessessFew practices in the business world are as absurd, senseless, irrational, and cynical as the allocation of investments of large public pension funds and endowments. And few fail so often and so predictably to achieve their true objectives. Yet almost all outside the industry – and many inside it – are fooled into believing the opposite. As an example, let us consider the recent news of the disappointing investment performance of Bridgewater Associates.

In late April, news reports appeared of clients’ dissatisfaction with the poor investment performance of the largest hedge fund in the world, Bridgewater Associates. Bridgewater, with $97 billion of assets as of June 2023, made its founder and chief investment officer Ray Dalio a famous multi-billionaire.

Most people assume he is a savvy investor who produces high investment returns for his exclusive institutional clients. (Bridgewater generally requires clients to have a minimum of $7.5 billion of investable assets.) And they assume that those clients, being “financially sophisticated,” must achieve high returns in the funds they invest in.

But that is not the case.

Bloomberg news reported on April 23:

It was an irresistible pitch. Give us your money, executives at Ray Dalio’s Bridgewater Associates and other hedge funds said, and we’ll funnel it into a money-minting, sure-thing strategy for the long haul. But now, after five years of sub-par returns, many of the institutional investors who sunk large sums into risk-parity funds, as they’re known, are demanding the money back.