Bridgewater’s return to co-CEO model rekindles management concerns

Two years ago the gregarious former army ranger David McCormick finally emerged victorious from a messy, decade-long process to find a new chief executive for Bridgewater.

Now the world’s biggest hedge fund is once again under new leadership after McCormick quit to contest the upcoming Senate race in his native Pennsylvania. His departure prompted Ray Dalio, the iconoclastic billionaire Bridgewater founder, to elevate two co-CEOs as replacements.

The loss of McCormick — and a return to the twin chief executive model that prevailed until his ascension as sole CEO in 2019 — has rekindled questions about the management of Bridgewater at a time when the hedge fund contends with a long stretch of mediocre results and speculation about the future of its quirky founder.

“I think he’s trying to figure out what to do. He’s either lost his mojo, or just doesn’t want to do it any more,” said one senior former Bridgewater employee of Dalio. “He basically has a firm that is not really structured to be sustainable without him, but isn’t really sustainable with him either.”

The promotion of a youthful former Israeli soldier and a veteran insurance executive to lead what is the world’s biggest hedge fund raised eyebrows in the industry.

Nir Bar Dea only joined Bridgewater in 2015, before which he was an adviser to the Israeli UN mission, and an entrepreneur. Although he has an MBA from Wharton in 2014, 40-year old Bar Dea had no experience in finance before starting at Bridgewater, having served in the Israeli Defence Force and risen to the rank of major.

He has been partnered with Mark Bertolini, a 65-year who was chief executive of health insurer Aetna before it was acquired by CVS in 2017. Bertolini was appointed as an independent director of Bridgewater’s internal board in 2019 and subsequently made co-chairman.

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Lindy Greer, associate professor for management and organisations at Michigan Ross, said that co-CEO set-ups can work, but that her research showed they often resulted in problems. “Multiple powerful people working together tends to lead to power struggles and teams underperforming,” she added.

In addition to promoting Bar Dea and Bertolini, Bridgewater has set up an “operating board of directors”, formalising a body initially formed when Dalio first stepped down as chief executive in 2017. “This marks the next important step in the transition of leadership and ownership of Bridgewater from Ray,” the firm said in a memo to its employees in December.

Even in a hedge fund industry long been seen as a “black box” on Wall Street, Bridgewater is known for its opacity. It asks staff to sign draconian non-disclosure and non-compete contracts, and aggressively pursues those it deems to be in breach. In 2020 it was found to have “manufactured false evidence” to prove that two former employees had misappropriated trade secrets. Former employees and investors rarely speak, and, if they do, they ask for anonymity.

Bridgewater runs two flagship funds named All Weather and Pure Alpha. The first seeks to manage money in a mathematically balanced but fairly passive way, and tends to ebb and flow with the broader economic environment. Last year All Weather returned 11.6 per cent as buoyant stocks counteracted a bond market sell-off, and has gained more than 10 per cent a year on average over the past decade, according to people briefed on its performance. Bridgewater declined to comment.

However, the Pure Alpha fund — Bridgewater’s more traditional hedge fund, which seeks to make money from systematic bets on big economic trends — has had a poor decade. Only an unusually good December rescued it from yet another dismal year in 2021, when it returned 8.1 per cent, the people said. Pure Alpha lost 12.6 per cent in 2020, when most other “macro” funds notched up their biggest gains in years, and has averaged annual gains of under 2 per cent over the past decade.

Its average annual return since 1991 is 10.5 per cent, which has helped make Bridgewater the highest-grossing hedge fund in history, with cumulative net gains since its formation in 1975 of about $47bn, according to LCH Investments, a fund of hedge funds run by the Edmond de Rothschild Group.

“They are the Manchester United of hedge funds,” said one investor who has visited Bridgewater’s leafy Westport, Connecticut headquarters but declined to invest. “Once great but these days struggling.”

Investment experience is not a necessary prerequisite for the firm’s co-CEOs, given that Bridgewater’s trading is firmly controlled by Dalio and his longtime lieutenants Greg Jensen and Bob Prince, who work as co-chief investment officers.

Although Dalio has stepped back from day-to-day involvement, and is now in theory just another board member, he and his longtime investment deputies are still said to be the driving force at Bridgewater. “It doesn’t really make much difference who the CEO is,” said one former employee. “Three people run the place: Ray, Greg and Bob.” 

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McCormick is said to have professionalised Bridgewater’s management and personally groomed Bar Dea to succeed him, with his elevation to deputy CEO in February 2021 reflecting his internal stature. The board decided to pair him with Bertolini given the latter’s CEO experience, with the understanding that Bertolini is unlikely to represent the long-term future of the firm.

The twin CEOs face a daunting challenge. Despite his success as an investor and author of a best-selling book laying out his management principles, Dalio is described by some former employees as an enigmatic leader who can sometimes veer between distraction or monomania. One said that new employees were sometimes shown a video that explained how to best communicate with Dalio.

Many people who have worked at or invested with Bridgewater describe its culture as idiosyncratic and tricky to navigate. One of Dalio’s main principles is “radical transparency”. All meetings are videotaped and subsequently reviewed, and forthright debates about anything are encouraged.

Employees have a “Pain Button” app they can use to signal their emotions at any given time; a “Dot Collector” that allows users to rate one another continuously on a grid system; and “Baseball Cards” that sum up each employee’s strengths and weaknesses. All the data are visible to everyone internally.

Some say they appreciate the meritocratic, brutally honest and intellectually stimulating approach. But staff turnover has been exceptionally high. Even some that initially liked the idea of radical transparency have ultimately become frustrated by how it works in practice at Bridgewater.

“The culture is very strong. People either become true believers, or they leave,” said the former senior employee. “Radical transparency has caused a strange culture, but mostly because of the way it has been executed. It unintentionally turns Bridgewater into a Real Housewives of LA kind of place.”

That was demonstrated by the rotating cast that has vied for Bridgewater’s chief executive job over the past decade. In 2011 former Morgan Stanley executive Eileen Murray was appointed co-CEO alongside Jensen. But in 2016 Jensen was stripped of the co-CEO job after reportedly clashing with Bridgewater’s founder.

“I think the real plan was that Greg was going to run Bridgewater, but somehow that blew up,” said another former Bridgewater executive. Ever since then “they’re just trying to find out some new configuration”.

Jensen’s title was then given to Jon Rubinstein, a senior Apple executive. Rubinstein lasted less than a year after mutually agreeing that he was “not a cultural fit”, Dalio said at the time. His co-CEO spot was then given to McCormick. Murray then left in late 2019, leaving McCormick as sole CEO and leading Dalio to hail it as the culmination of a 10-year, ultimately successful management transition. Murray later sued Bridgewater for discrimination and the lawsuit was settled in 2020.

McCormick, who joined in 2009, was supposed to bring more order to Bridgewater. He arrived from a stint as a senior official at the US Treasury under George W Bush and brought a zeal for structure, efficiency, succinct meetings and a penchant for “planning matrices” that was picked up during a brief spell at McKinsey. That freed up Dalio to focus on investing, and, increasingly, his role as a public intellectual.

In 2017, Dalio published a book called Principles that laid out over 200 of his central tenets, such as “pain + reflection = progress”. It has since morphed into a website, an app and a free online personality test, as well as an illustrated book for children called Principles for Success. He has also written a book on debt crises and most recently a historical study of why countries rise and fall.

In addition he has headlined South by Southwest, attended Burning Man, mentored hip hop magnate Sean “Diddy” Combs, accumulated almost 800,000 followers on Twitter and participated in several Reddit “Ask Me Anything” sessions.

Not all of Bridgewater’s clients have been thrilled at the time Dalio has spent cultivating his public profile. One institutional investor said simmering concerns over Bridgewater’s growing size, opacity and slipping returns had been compounded by the amount of media attention it was attracting, leading them to pull their money out a few years ago.

“Put very bluntly, we would rather have a hedge fund manager tending the shop and focusing on their fund, rather than writing books,” the investor said. “Bridgewater itself became a talking point.”

Improving its investment performance will be the biggest priority for Bridgewater’s leadership. But some former insiders are sceptical it can be done, arguing that it is now so large that it struggles to trade nimbly and has a culture that does not always encourage significant changes to core investment models.

“They have some extremely smart people, and they work themselves really hard,” said one. “But I don’t think they’ve evolved very much . . . The whole process is set up with the belief that there are some universal rules that hold forever. So in a way it’s against the philosophy to change at all.”

In researching his latest book Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail, Dalio developed an appreciation for how some institutions could last for centuries if they had “the right qualities”.

In his email announcing McCormick’s departure and the elevation of Bar Dea and Bertolini, Dalio noted that Bridgewater was approaching its 50th birthday and said he was confident it now had the “breadth and depth that allows it to not be dependent on anyone — not me, not Dave, not anyone”.

“I’m praying for them and expecting (the next generation) to deliver at least another 50 years of success,” Dalio wrote. “I also want to thank them all for allowing me, and helping me, to transition in this way of shedding my responsibilities while continuing to be an investor and a mentor. May the Force of Evolution be with us.”

This article has been updated to correct the location of Bridgewater’s Connecticut offices

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