An article written by Stephen Taub of Institutional Investor describes how “Bridgewater Associates’ Pure Alpha fund has gotten off to one of its best starts in recent memory.”
Taub explains a drawdown at the start of the pandemic in early 2020 serving as “a stark reminder that it was time to make changes and speed up the decision-making process.” The resurgence, Taub explains, was “the result of a series structural changes to its management and investment processes, as well as a sharp shift in its macro view of the changing financial landscape.”
“One of the firm’s biggest and most critical moves was the creation of its Investment Committee,” Taub says, which includes Co-CIOs Bob Prince and Greg Jensen, Karen Karniol-Tambour, Kevin Brennan, Rebecca Patterson, Kerry Reilly, and Noah Yechiely; among other important participants. “The committee is responsible for overseeing all of the firm’s investment systems and vetting any changes to those systems. As part of the arrangement, the firm stressed to investors that founder Ray Dalio would act as a mentor to the group,” Taub goes on to say, referring to Bridgewater’s Transition Milestone announced in February. “In the past, investment decisions had been made by unanimous agreement among the three CIOs: Dalio, Jensen, and Prince.”
Taub also highlights, “Bridgewater’s management changes culminated at the beginning of this year when the firm named Nir Bar Dea and Mark Bertolini as co-chief executive officers,” in reference to Bridgewater’s New Leadership announcement in January.
“As Bridgewater made personnel and process changes, it quickly realized that the pandemic had radically accelerated a global shift to a new paradigm. The firm believed that the world of falling interest rates, low inflation, and globalization was over. The decision by central banks to aggressively pump liquidity into the system when the world had all but shut down caused an inflationary demand shock, and the Russian invasion of Ukraine added a supply shock."
“Bridgewater’s message to investors is that we’re now living in a world of excess demand combined with shortages of labor and commodities, a situation that will cause much higher inflation and in turn cause growth to decelerate, due to increased tightening from the Federal Reserve. Although Bridgewater’s view had been evolving for some time, the firm credits the new investment committee for more rapidly turning this vision into portfolio actions,” Taub explains.
“Bridgewater is also telling investors that it made significant returns from interest rates — being short the U.S., Europe, and the U.K. This was followed by commodities and developed countries’ currencies — for example, shorting the yen”; these gains offset losses in equities, emerging market currencies, and inflation-linked bonds.
“Bridgewater has also told investors that since the end of March 2020, its top five asset class systems in terms of share of gross returns have been commodities (17 percent), short rates (13 percent), nominal bonds (11 percent), long/short cash (6 percent) and equities (5 percent).” The bottom five asset classes have been sovereign credit (-1%), the strategy’s event risk fund risk control (-1%), emerging market currencies (-1%), corporate credit (0%), and equity slices (1%). Over the recent two-year period from March 2020 through the end of March 2022, Bridgewater enjoyed a 58% winning percentage across the different markets it trades, consistent with its longer-term historical average.
Bridgewater’s Pure Alpha [18% volatility] strategy that was up 16.3% (net total) in the first quarter and 24.8% year-to-date (net total). After a loss of more than 20% to start 2020, Bridgewater’s Pure Alpha strategy has returned over 50% (net total return) since the bottom of the drawdown — and has returned 4.4%, 4.2%, and 8.5% annualized (net total) over the last 5, 10, and 15 years.
Read more on Institutional Investor.
Returns shown are net, total return through April 15, 2022. Past performance is not necessarily indicative of future results. There is no guarantee that the results shown or referred to can or will be achieved in the future. Attribution and winning percentage are based on Bridgewater analysis. There could be other methods of attributing performance, however, any other method would result in the same total return. Please see important disclosures and other information.