Speculation about Cohn's future has been rampant since he apparently has fallen out of favor with President Donald Trump. Cohn, the former chief operating officer at Goldman Sachs, is Trump's top economic advisor but recently criticized the president for his reaction to the racial violence in Charlottesville, Virginia.
"In terms of my reaction, I would say if he was to leave it would be terrible," Dalio said at the "Delivering Alpha " conference presented by CNBC and Institutional Investor.
"It would also represent a challenge for the administration," he added. "It also becomes representative to what it would be like to be in the administration. It would be difficult to get quality [people] in the administration. ... I think it would be terrible if Gary left."
Cohn is currently helping usher Trump's tax reform plan through Congress. Earlier in the day, Treasury Secretary Steven Mnuchin said he and Cohn continue to work together with the hopes that a tax package can get done by the end of the year.
However, various reports indicate that Trump has frozen out Cohn. The New York Times on Monday reported that Trump does not make eye contact with Cohn when they are in a room together, a favorite tactic of the president to show displeasure.
The rift comes at what Dalio said is a critical time for the country. He compared the current economy to the situation in 1937, just as the U.S. was about to enter the second leg of the Great Depression.
The rise in populism is a common thread, Dalio said. While he had expressed hope for Trump, Dalio lately has been more critical.
Dalio has a book soon to be released called "Principles: Life & Work," which will lay out hundreds of ideas on which he has lived his life and operated in business. Dalio runs the largest hedge fund in the world, famous for the management philosophy of "radical transparency."
Dalio said Cohn is skilled in what the hedge fund titan called "thoughtful disagreements," which he said forms the cornerstone for the way his Bridgewater Associates is run.
"The power of great collective decision-making is so much greater than the power of any individual decision-making," he said.