Ray Dalio has created a machine at hedge fund Bridgewater – not only have assets surpassed $120B, the fund continues to churn out some fantastic results for investors. Through end of August last year, the fund was up 25% YTD (and that was after an awful August for markets, and before the stampede upward of October); this after a 44% gain in 2010. Longer term, this quirky group, has returned a fantastic 15% annualized since 1991.
The WSJ highlights some updated thoughts for the near term (gloomy) and decade out (not much better). Essentially it paints the developed world as "Japan-ized". Some excerpts:
- As the new year rings in, the hedge fund firm has no plans to change that gloomy view. Robert Prince, co-chief investment officer at Bridgewater, and his managers at the world's biggest hedge fund firm are preparing for at least a decade of slow growth and high unemployment for the big developed economies. Mr. Prince describes those economies—the U.S. and Europe, in particular—as "zombies" and says they will remain that way until they work through their mountains of debt.
- "What you have is a picture of broken economic systems that are operating on life support," Mr. Prince says. "We're in a secular deleveraging that will probably take 15 to 20 years to work through and we're just four years in."
- In Europe, "the debt crisis is [a] long ways from over," he says. The economic and financial morass will mean interest rates in the U.S. and Europe will essentially be locked at zero for years.
- In this bleak environment, Mr. Prince says stocks remain vulnerable to "air pockets" from shocks, such as bad news out of Europe. But for longer-term investors looking out over the next decade, he says, equities may be a good buy. There is even money to be made in U.S. Treasurys, despite interest rates near record lows, and gold is likely to resume its climb as central banks print money to bolster their economies. Mr. Prince says.
- Recent better-than-expected news on the U.S. economy is unlikely to be the start of a healthy expansion, he says. The uptick in economic growth has been fueled by a decline in the savings rate, which, without material income and employment gains, is unlikely to be sustainable as long-term credit growth also remains weak, he says.
- Bridgewater's flagship Pure Alpha Strategy fund is considered one of the top funds in the world. As of the end of November, it was up 25% since the start of the year, according to people familiar with the situation. The average macro fund had lost 3.7%, according to Hedge Fund Research.
- Founded in 1976 by Ray Dalio, Bridgewater manages $125 billion and has 1,400 employees. Mr. Prince, 53 years old, joined in 1986. Pure Alpha has been up each year since 2000, and has recorded just three negative calendar years since 1991. In 2008, the fund returned 9.4% after fees, and after a 2% gain in 2009—its smallest of the decade—Bridgewater posted a 44.8% return in 2010.
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog