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Bridgewater's Ray Dalio: No more alpha

Ray Dalio, the founder of mega-hedge fund Bridgewater Associates, has a bleak outlook for investors over the next decade.

Dalio predicts rising asset prices will cause equity returns to average out at 4 percent over the next decade, limiting the Federal Reserve's ability to influence economic recovery.

"I think going forward most investors are not going to be able to produce alpha," Dalio said in an interview during The New York Times' DealBook conference on Tuesday morning. "Alpha is a zero sum."

(Read more: Ray Dalio explains 'How the economic machine works)

Ray Dalio speaks with CNBC at the 2014 WEF in Davos, Switzerland.
Patrick Bucci | CNBC
Ray Dalio speaks with CNBC at the 2014 WEF in Davos, Switzerland.

Dalio said the Federal Reserve's massive bond-purchasing program creates a "wealth effect" that concentrates in the hands of asset owners. But that has a diminishing "trickle-down" effect over time, he said.

"In addition, what happens is that as that price rises the expected future return goes down," Dalio said. "So for example, the expected future return of equities is about 4 percent now, because of the price rise."

He said investors need to create a proper balance between stocks, bonds and cash because of the narrowing return rates between them.

(Read more: The boat people of Stamford vs. Ray Dalio's hedge fund)

—By CNBC's Jeff Morganteen. Follow him on Twitter at @jmorganteen and get the latest stories from "Squawk on the Street."

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