Bridgewater Associates is an American investment management firm founded by Ray Dalio in 1975. The firm serves institutional clients including pension funds, endowments, foundations, foreign governments, and central banks.
It utilizes a global macro investing style based on economic trends such as inflation, currency exchange rates, and U.S. gross domestic product. Bridgewater Associates began as an institutional investment advisory service, graduated to institutional investing, and pioneered the risk parity investment approach in 1996.
In 1981, the company moved its headquarters from New York City to Westport, Connecticut, and currently engages 1,700 employees. As of 2018, it had US$124.7 billion in assets under management.
The firm’s history includes the pioneering of industry strategies such as: currency overlay, the separation of alpha and beta strategies, the creation of absolute return products, and risk parity. According to Financial News, the company was the fastest growing asset manager from 2000 until 2005 when it stopped accepting new accounts. Its assets under management have increased by 25% each year during the 2001-2010 decade with employees at eleven times their year 2000 levels. The company’s Daily Observations research is reportedly read by leaders of central banks and managers of pension funds around the world.
According to Ray Dalio, Bridgewater Associates is a “global macro firm”. It uses “quantitative” investment methods to identify new investments while avoiding unrealistic historical models. Its goal is to structure portfolios with uncorrelated investment returns based on risk allocations rather than asset allocations. Additionally, the company is reported to accept funds from only institutional clients such as pension funds, foundations, endowments, and central banks rather than private investors.
Separation of alpha and beta
The company divides its investments into two basic categories: (1) Beta investments, whose returns are generated through passive management and standard market risk, and (2) Alpha investments, whose goal is to generate higher returns that are uncorrelated to the general market and are actively managed. The principle of separating alpha and beta investments was introduced by Dalio in 1990 and gained the recognition of other equity managers beginning in the year 2000. The firm is reported to be the first hedge fund manager to separate alpha and beta investment strategies and offer dedicated investment funds for each.
According to Bloomberg, Bridgewater uses an investing system that combines traditional diversification with “wager[s] on or against markets around the world” and attempts to invest in instruments and markets that do not “move in lock step” with each other. To guide its investment strategies, the company’s top executives have compiled hundreds of “decision rules” which are the financial corollary to the firm’s employee handbook, Principles, and these investment guidelines have been incorporated into the firm’s computer’s analysis.
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