Bridgewater Associates, the world's largest hedge fund, is currently dealing with internal conflicts due to the potential return of its founder, Ray Dalio, to leadership. This comes less than a year after Dalio's retirement in October 2022. Despite stepping down from full-time duties, Dalio has the contractual right to retake control if the firm's financial performance deteriorates.
Since his departure, Bridgewater's primary fund has experienced a decline. In response, Dalio has suggested the establishment of a new fund within Bridgewater to boost investment returns. However, this proposal met resistance from top staff and board members, including CEO Nir Bar Dea, who fear that Dalio might use it to regain control.
Bar Dea, appointed by Dalio himself, has reportedly expressed feeling as though he's managing two entities: Bridgewater and Dalio. A number of senior members have threatened to resign if Dalio interferes further. These internal conflicts are causing distractions for the firm which oversees $125 billion for various large-scale investors worldwide.
The company's primary fund, Pure Alpha, lost about two-thirds of its annual gain in the last quarter of 2022 and continued losing money in the first half of 2023. The firm's assets under management have fallen around 25% from their peak.
Bar Dea joined Bridgewater in 2015 and quickly ascended through the managerial ranks. He has formed alliances with some of Dalio's longtime deputies, including Bob Prince and Greg Jensen, both of whom served as co-chief investment officers alongside Dalio.
Three years ago, these three men proposed an exit incentive to Dalio: Prince and Jensen would take on additional personal debt to buy out Dalio's majority ownership stake. In return, Dalio would relinquish his titles of co-chief investment officer and CEO.
Prince assumed a significant debt burden to become Bridgewater's largest owner. Consequently, Dalio gave up his formal investment roles at the firm for a new investment committee where his power was diluted. The firm's investment performance improved significantly over the two years following this change.
According to Alan Fleischmann, a spokesman for Bridgewater, "In the three years since the creation of that new committee, Bridgewater’s flagship fund had produced an average annual return of 10 percent, after fees."
However, disagreements between Dalio and his successors persisted. During negotiations over his retirement package, Dalio requested millions of dollars from his former firm to license software he helped design for employee evaluation in various personality categories. This request was rejected by Bar Dea as unjustified.
Dalio's exit negotiation concluded with Bridgewater agreeing to pay him recurring annual payments of $1 billion as part of his exit package. It was not until October when Dalio signed off on this agreement that those involved in the negotiations were certain of his departure.
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