Bridgewater Associates
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Date updated:05-26-2007
From Interview Barron's 5-28-07
"Ray Dalio has been at the forefront of change in the hedge-fund and investing world since he started Bridgewater Associates of Westport, Conn., more than 30 years ago. A culture that rewards innovative and pioneering work has resulted in powerful long-term performance. The dedication to excellence fostered by Dalio has made Bridgewater a global powerhouse, with $160 billion under management and clients that range from central banks and foreign governments to pension funds and endowments.
Barron's: How would you describe your overall outlook?
Ray: Bond yields are going to go up by 75-100 basis points [0.75 to one percentage point], and credit spreads will widen. There are three really big forces driving the markets and driving the global economy, and if you could imagine those forces moving through time and interacting with themselves and each other, you will understand my view of the world. There is an economic market cycle, there is the China and oil factor, and there is leverage. We are in the early stages of the late part of the economic cycle. The late part of the cycle is when inflation begins trending up, and the tradeoff between inflation and growth becomes more acute, and central banks tighten monetary policy.
Barron's: What are you betting on in this environment?
Ray: We have anti-carry trades. We generally have bets on wider credit spreads. We have bets on interest rates rising, not declining. We are long commodities and we are long emerging-market currencies. And we expect to increase these positions with time.
Barron's: Who's really gaining here? It seems to me as hedge funds proliferate we are seeing more mediocre results.
Ray: Hedge funds and private-equity firms today are like the dot-coms in 2000: Ask for money and you'll get it. They bid up the prices of everything. The amount of money flowing is almost out of control, and it's making everything overvalued. A client of mine said it's like there are 11,000 planes in the sky and only 100 good pilots -- an accident is bound to happen. Just like the dot-com bust, the winners and losers will be sorted out but the technological advances won't stop. There is a greater differentiation of managers now than ever before. For example, practically all good managers are closed to new investment. And there is fee differentiation. The business has become much more technologically intensive and people intensive. It is much tougher for new boutiques to compete."
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