Bridgewater shifting to new power structure

It took 10 years, but Bridgewater Associates LP is amid a succession as Ray Dalio, the firm's founder, co-chairman and co-CIO, hands over the decision-making power he has held since the firm was founded in 1975 to a newly formed operating board of directors.

"Ray knew by watching other founder-led organizations that it would take 10 or 11 years to do it well and there likely would be a lot of successes and failures along the way to getting it right. That timeline and those expectations have largely played out the the way we expected," said Kyle Delaney, Bridgewater's president and chief commercial officer, in an interview.

What Westport, Conn.-based Bridgewater didn't anticipate was the immediacy of the departure of CEO David McCormick, who resigned from the firm on Jan. 3 to consider running for the U.S. Senate in Pennsylvania, Mr. Delaney said.

Bridgewater quickly appointed Nir Bar Dea and Mark Bertolini as the firm's new co-CEOs on the same day.

Mr. Bar Dea was Bridgewater's deputy CEO and Mr. Bertolini was an independent director and chairman of the firm's prior operating board of directors. Mr. Bar Dea will not be replaced as deputy CEO, said a spokeswoman for the company. Mr. Bertolini retired as CEO of Aetna Inc. in 2018.

As for the operational side of Bridgewater, the firm said its previous operating board of directors served "for many years in an unofficial capacity as an internal board" and now is being replaced by a formal operating board, according to a Dec. 28 memo.

Previously, Mr. Dalio had sole decision-making power over the firm's operations.

Members of Bridgewater's new operating board of directors includes Mr. Dalio; co-CIOs Greg Jensen and Bob Prince; Messrs. Bar Dea and Bertolini; James Haskel, senior portfolio strategist; Noah Yechiely, head of equity research; and Osman Nalbantoglu, co-head of the firm's investment engine, according to the memo.

The board also has four independent directors: Mike McGavick, chairman of the operating board and the former CEO of XL Group Ltd.; Sian Beilock, president of Barnard College; Margo Cook, the former president of Nuveen Advisory Services; and John Megrue, former CEO and chairman of Apax Partners LLP.

The rollout of the new operating board will take place over the next few months, the memo said, noting that on Feb. 14, the firm will finalize "the terms that lay out the path to an ensuing official transfer of control to this new board."

"It is not easy to transition from a founder-led organization with a strong leader and strong culture while having one's own strong visions and building them out," said Messrs. Dalio, Jensen, Prince and McGavick in Bridgewater's Jan. 3 memo.

Mr. Dalio was not available for an interview.

For the most part, industry sources said Mr. Dalio's step back from the operational side of the business is unlikely to cause consternation for asset owners since he is not relinquishing his investment management duties.

"Big picture, Ray's move away from decision-making probably is not watchlist worthy on its own," said Christopher Solarz, a New York-based managing director at alternative investment consultant Cliffwater LLC, in an interview.

Sources said some of the issues Bridgewater's new CEOs and operating board of directors will deal with going forward include the firm's investment performance, which has been challenged by current market conditions; a decline in assets under management of 10.7% to $150 billion as of Nov. 30 from the firm's peak AUM of $168 billion at the end of 2017; and personnel retention.

"Bridgewater has had a bit of revolving leadership below Ray Dalio and these moves seem ... to be an effort to address that and succession in one fell swoop. They recently promoted Kyle Delaney to president (in addition to his role as chief commercial officer) and he has been a steady hand on the client side of the business through performance swings," said James Neumann, a New York-based partner and CIO of hedge fund advisory firm Sussex Partners U.K. Ltd., in an email.

"The allocators will remain focused on performance and probably put less weight on management changes. If it were turnover in the more technical staff that help to keep the algorithms fresh and performing, that might be more of a concern," Mr. Neumann said.

Performance of Bridgewater's flagship global macro fund Pure Alpha 18% Vol fund was up 7.95% in 2021 compared with a loss of 12.6% in 2020. The firm's All-Weather 10% Vol risk-parity strategy returned 11.57% in 2021 and 9.5% in 2020.

Bridgewater was put on asset owners' watchlists in 2020 after the Pure Alpha fund experienced a 20% decline in the first quarter of 2020, said sources who noted that the improvement in the fund's returns in 2021 resulted in fewer asset owners putting the company in their penalty boxes.

Pensions & Investments reporting showed that two pension funds — the $19 billion Ohio Police & Fire Pension Fund, Columbus, and the $21.5 billion Orange County Employees Retirement System, Santa Ana, Calif. — put Bridgewater on watch in 2021 due to performance concerns.

In March, the Ohio fund placed Bridgewater on its watchlist for underperformance of an $1.1 billion investment combining Pure Alpha and S&P 500 futures, and in April, placed a $1.7 billion levered TIPS account on the list.

Bridgewater remains on the system's watchlist, but "OP&F is encouraged by what appears to be a rebound in Bridgewater's performance," said David Graham, the fund's spokesman, in an email.

Orange County placed Bridgewater on watch during an Aug. 25 meeting for long-term underperformance of its $175 million investment in the firm's Pure Alpha II fund.

"Bridgewater remains on the OCERS watchlist, but no action has been taken as we continue to evaluate the situation," said CIO Molly Murphy in an email.

The $40.4 billion defined benefit plan of the Indiana Public Retirement System, Indianapolis, is actively monitoring Bridgewater in light of the management of the firm, "but does not have a comment at this time. The INPRS investment team relies on qualitative and quantitative factors with regard to the watchlist. The evaluation is ongoing and any change will be reflected in a presentation to the board," said Dimitri Kyser, a spokesman for the system, in an email.

INPRS had a total of $4.8 billion invested with Bridgewater as of Oct. 31, according to an investment report.

"Despite its performance issues, Bridgewater remains an industry favorite," said Daniel Stern, a New York-based senior managing director at Cliffwater.

"Compared to the other macro managers, clients are comfortable investing with Bridgewater," he said.

Bridgewater reduced its client base over the past few years to focus on strategic partnerships with large asset owners, and Mr. Delaney said the group of those investors has expanded and their assets have grown.

"The capacity of our funds is primarily driven by market liquidity and conditions. The low-interest-rate environment has reduced how much we choose to manage in our alpha strategies and Pure Alpha is largely fully committed," Mr. Delaney said, noting that "market conditions have created dislocations and complexities that are creating very good trading opportunities as central banks respond to economic conditions."