- Bridgewater's All Weather fund is down 14% and the Pure Alpha fund is down 21% as of the end of Monday, according to a note billionaire founder Ray Dalio sent to investors this morning.
- He said "while it's not what I would want, it's consistent with what I would have expected under the circumstances."
- Dalio in the note points out how the firm was down 20% in September 2008, before making money by the end of the year.
- Pure Alpha was flat last year while All Weather made nearly 20%.
- Read the full memo below.
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Ray Dalio isn't happy with the performance of his Pure Alpha and All Weather funds in light of the sell-off due to the novel coronavirus sell-off, but he isn't surprised.
The billionaire founder of $160 billion hedge fund firm Bridgewater told investors this morning in a note that "while it's not what I would want, it's consistent with what I would have expected under the circumstances." His Pure Alpha fund is down roughly 21% as of the end of day Monday, and the more measured All Weather fund is down roughly 14%.
In a two-page note to investors, Dalio said that the firm initially thought the virus was similar to other global risks that they had built into their programs, like an earthquake or a war with Iran.
"For those sorts of big potential risks or others we can't even imagine, we have controls that are intended to limit our losses to tolerable amounts," he wrote. "In this case the risk control process worked as designed. As a result, our losses have been similar to those in our prior worst-performing periods."
The big winners in the hedge fund space include commodity and macro players, as well as volatility managers. In the equity space, value managers have outperformed growth funds so far. Bridgewater has been the most high-profile of managers to suffer serious losses, as many other large multi-strategy firms, like Citadel and Point72, and quants, like Renaissance Technologies, have remained roughly flat or suffered more muted losses.
Dalio reminded investors that the firm was down 20% in September of 2008, before making money for the year, and wrote that the firm has "maintained our liquidity to be able to adjust the portfolio in response to changing conditions."
The firm used a similar playbook to its 2008 game plan, with a focus on interest rates and a floor of 0% rates.
"For example, eight years before the 2008 financial crisis our study of the Great Depression led us to understand the mechanics of hitting 0% interest rates in an economic downturn, which led us to build a 'Depression Gauge' so that when rates hit 0% in 2008 we had it in our systems and we stuck to it and it helped us a lot," he wrote.
"Similarly the game plan that we had going into this coronavirus crisis used indicators to trigger our defensive moves
in a downturn toward a 0% interest rate floor. It also included holding options positions designed to limit our losses
in the worst-case scenario regardless of the cause."
Toward the end of the note, Dalio warned about a world with negative interest rates, "a global wealth gap, and populism."
"It is one we have been preparing for a long time. I will soon send you my research about this. We do think that we have an edge in knowing how to invest in this environment. Right now we are deep at work, looking at the implications in detail," he wrote.
Bridgewater declined to comment further.
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