New York (HedgeCo.net) – In the July 25, 2011, issue of The New Yorker, in “Mastering the Machine”, John Cassidy talks to Ray Dalio and gets an exclusive look inside Bridgewater Associates, the world’s biggest hedge fund, of which Dalio is the founder.

Dalio, in the tradition of George Soros and Julian Robertson—famous speculators who ranged across markets—is a “macro” investor, which means that he bets mainly on economic trends, such as changes in exchange rates, inflation, and G.D.P. growth, and he has made a number of spot-on predictions (in late 2007, he told the Bush Administration that many of the world’s largest banks were on the verge of insolvency—a warning that was ignored).

Dalio insists that what he calls Bridgewater’s culture of “radical transparency,” in which he encourages people to challenge one another’s views openly, regardless of rank, is central to the firm’s success. “I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weaknesses are,” he tells Cassidy.

His philosophy—which he’s summed up in “Principles,” a hundred-page text that is required reading for Bridgewater’s new hires, and, Cassidy writes, is “partly a self-help book, partly a management manual, and partly a treatise on the principles of natural selection as they apply to business”—has “created a workplace that some call creepy,” and some critics refer to Bridgewater as a cult.

Dalio says, however, that the specific culture of Bridgewater is “why we made money for our clients during the financial crisis when most others went over the cliff. . . . Our greatest power is that we know that we don’t know and we are open to being wrong and learning.”

Dalio “doesn’t pretend that Bridgewater is a typical workplace, but he is sensitive to criticism,” Cassidy writes. “I’ve been surprised that there’s been so much controversy about us having such clearly set-out principles, especially since they’re all about being truthful and transparent to do good work and have meaningful relationships,” Dalio says. “Most of the people who don’t like us having them haven’t read them—they just assume that us having a lot of principles makes us a cult.”

James Comey, Bridgewater’s top lawyer who is a relatively new hire, tells Cassidy that it took him a while to get used to dealing with Dalio. “It took me three months to realize that when Ray says, ‘I think you are wrong,’ he really means ‘I think you are wrong.’ He’s not trying to provoke you, or anything else.” Comey was initially struck by how long it took Bridgewater to make decisions, because of the ceaseless internal debates. But, he says, laughing, “the mind control is working. I’ve come to believe that all the probing actually reduces inefficiencies over the long run, because it prevents bad decisions from being made.”

Part of Dalio’s innovation, Cassidy writes, has been to build a hedge fund that caters principally to institutional investors rather than to rich people; of the roughly one hundred billion dollars invested in Bridgewater, only a small proportion comes from wealthy families, with the rest coming from public and corporate pension funds and government-run sovereign wealth funds. “

Making money on a constant basis is the holy grail, and Ray and Bridgewater have done that,” Ng Kok-Song, the chief investment officer of the Government Investment Corporation of Singapore, which invests with Bridgewater. “They are consistently innovating—constantly soul-searching and asking, ‘Have we got this right?’ . . . I am constantly asking myself, ‘If Bridgewater is doing this, shouldn’t we be doing the same thing?’?” Dalio is in constant communication with his clients.

“When a lot of folks were very, very secretive, Ray could see the value in creating something that was more open, something that was attractive to very large streams of money,” Robert Johnson, a former senior executive at Soros Fund Management, who now runs the Institute for New Economic Thinking, says. “In that sense, he was a visionary.” Cassidy writes that after the near implosion of the financial system brought about a deep recession, some policymakers came to respect Dalio’s analysis as well.

This spring, Dalio told Cassidy that economic growth in the United States and Europe was set to slow again; now that the slowdown appears to have arrived, Dalio thinks it will be prolonged. “We are still in a deleveraging period,” he says. “We will be in a deleveraging period for ten years or more.” He believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets.

“People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he says. “That’s what got us into the debt crisis. It’s just today, today . . . I think late 2012 or early 2013 is going to be another very difficult period.”

Editing by Alex Akesson
For HedgeCo.net
alex@hedgeco.net
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