Bridgewater draws $22.5bn as it opens to new money

Mary Childs in New York

Bridgewater, the world's largest hedge fund, has attracted $22.5bn after taking the unexpected step of opening its active funds to new money for the first time in seven years.

The move, which was prompted by the launch of a new strategy and a decline in assets due to market losses, gives existing clients a significant increase in their stakes in the fund.

The inflows mark a striking contrast to the pattern seen in many other parts of the hedge fund industry, where many funds have experienced redemptions as a result of market losses.

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It also shows the loyalty that Bridgewater continues to command from many of its clients, in spite of suffering unusually large losses in a flagship fund this year and facing questions about its corporate culture.

Ray Dalio, Bridgewater Associates
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"I know they've had a rough patch with Pure Alpha," said Robin Diamonte, chief investment officer at United Technologies and a longtime Bridgewater client who added money in recent months. "But it's unprecedented times, and things are not going to work. With managers like this, you just hold on."

This development is likely to be closely watched across the industry — not least because it highlights the degree to which unusual market conditions and losses are forcing even the most successful hedge funds to shift their strategies.

Bridgewater, founded in 1975, operates three main funds: its actively-managed Pure Alpha fund, the $62bn All Weather "risk parity" fund, and Optimal Portfolio, a fusion of the two which launched in February 2015.

The passively-managed All Weather fund has risen 13.5 per cent in value this year, while Optimal Portfolio has remained flat. But the $69bn Pure Alpha fund has fallen 9.4 per cent.

At $154bn, the Westport, Connecticut-based company is already the world's largest hedge fund. Even so, clients rushed into its Optimal Portfolio fund offering as it opened last year.

However, what is unusual is that in the past six months, after Pure Alpha had lost money, it has pulled in new money. Bridgewater wanted to keep its asset size broadly stable, according to people familiar with management's thinking.

"Every investor's going to have up years and down years. What we look at is whether the investor is sticking with their strategy, whether their process continues to have integrity, whether their strategy seems to be appropriate," said Bruce Zimmerman, chief investment officer at the University of Texas Investment Management Company.

Pure Alpha has generated about 12 per cent a year since 1991, and has not had a losing year in the last 15.

"When someone's going through a down period, sometimes that presents opportunities, like this one did," Mr Zimmerman said. "It presented the opportunity for us to be able to deploy more capital with a very long-term trusted partner that has been able to deliver for us, so we were pleased to take advantage."

This year clients have added more than $11bn to the company's funds. The total new money over the past two years is just $2bn shy of the total assets managed by Ken Griffin's Citadel, or just $3bn more than Brevan Howard.

Bridgewater told clients in its most recent investor letter that no one source from the more than 100 markets in which Pure Alpha trades was a disproportionate contributor, but the fund lost money in global bonds, Japanese equities, and European equities. The fund was caught wrongfooted with forces of deflation "overwhelming" those of expansion, according to the letter.

The company has faced scrutiny this year amid media reports of a leadership scuffle, and for its unique culture of "radical transparency". Bridgewater is in the midst of a 10-year transition period from its founder Ray Dalio, and in May brought in former Apple executive Jon Rubenstein to take over from Greg Jensen as co-chief executive officer, alongside Eileen Murray.

Additional reporting by Gillian Tett in New York

Ray Dalio is a speaker at the Sept. 13, 2016 Delivering Alpha conference, sponsored by CNBC and Institutional Investor.