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Dalio's Bridgewater launches new 'optimal' hedge fund

Ray Dalio, founder of Bridgewater Associates.
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Hedge fund behemoth Bridgewater Associates is poised to grow even larger.

Already the world's biggest hedge fund firm at $157 billion under management, the Westport, Connecticut-based money manager founded by Ray Dalio is launching its first new strategy since 1996. Dubbed "Bridgewater Optimal Portfolio," it will combine the firm's main investing styles, "Pure Alpha" and "All Weather."

Pure Alpha is a traditional hedge fund strategy that actively bets on the direction of various types of securities—including stocks, bonds, commodities and currencies—by predicting macroeconomic trends.

All Weather is a so-called risk-parity or leveraged beta strategy, which holds steady investments in stocks, bonds and commodities that in theory will make money in any economic environment, including inflation or deflation, in cases of either high or low growth. Bonds in the portfolio are often modestly levered—using borrowed money rather than cash—to increase their return, which can help make up for equity market losses. Bridgewater pioneered the strategy, which has now been copied by other money managers.

A short history on risk parity
A short history on risk parity

Optimal Portfolio's main difference is the addition of actively managed bets against securities"shorts"to passive positions, according to a description by co-chief investment officer Bob Prince on a recent call with clients, as reported by Pensions & Investments.

A spokesman for Bridgewater, which has about 1,400 employees, declined to comment.

Optimal Portfolio will only be available to institutional investors like public pensions, university endowments and charitable foundations—already Bridgewater's focus.

Prince said in the same client call that the strategy is expected to have an annualized total return of 8.5 percent net of fees with volatility or "risk" of about 10 percent, according to P&I.

That's in line with historical returns for All Weather (up 11.4 percent in 2014 through November and 8.95 percent annually since inception in 1996) and Pure Alpha II (up 3.56 percent through November and 13.21 percent annually since inception in 1991), according to performance information obtained by

Ray Dalio: Monetary policy effectiveness waning
Ray Dalio: Monetary policy effectiveness waning

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Dalio recently gave his market views at the DealBook conference in New York, saying the economy is good for now, but there could be trouble ahead as monetary policy becomes less effective in the developed world.

"It's a good environment," he said in noting that Bridgewater was still holding bets on the appreciation of U.S. stocks.

But in a year or two, Dalio noted, the "effectiveness of monetary policy will be less," and that could lead to less buffer against an economic hit.

"Whenever there might be a need for easing of monetary policy, we're going to be in a situation in which the effective ability to ease is very limited," he said at the conference. "And that's at the same time that asset prices will be comparatively high."

For now, though, the economy is fine, he said.

"We're in the mid part of a cycle. This is the easy part, the good part of the cycle," Dalio said.

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