Hedge Funds, News

Bridgwater Associates Truth Probings Are About To Get Turbo-Charged

In 1974, Bridgewater hedge fund manager Ray Dalio was working in the commodities futures department of Shearson Hayden Stone when he went out with his boss on New Year’s Eve, and after getting into a debate with the guy, punched him in the stomach. Soon after that night, Dalio was fired when management learned that “at the annual convention of the California Food & Grain Growers’ Association, he paid an exotic dancer to drop her cloak in front of the crowd.” Looking back, it’s clear that in both situations, Dalio was merely acting on his lifelong belief that one should relentlessly “pursue the truth at all costs,” the guiding tenet Principle found within Bridewater Associate’s employee handbook, written by Ray.

Unfortunately, in 1974, Principles was but a single-celled idea in Dalio’s mind, and the higher-ups at SHS didn’t understand that Ray didn’t pay off the dancer so he could see her tits but so conference goers could drill down to the truth underneath her robe, while punching the boss was RD’s way of trying to get the guy to open his eyes.

After he was canned, it became clear to Dalio that even if he got another job, it was highly unlikely that people would see things his way and made the wise decision to found Bridgewater out of his two bedroom apartment. Thirty-six years later, the Westport-based hedge fund manages assets of up to $100 billion and employs a staff of over 1,000. Critical to the firm’s success has been Principles, which we published last year,** copies of which are distributed to all staff, who are instructed to “probe colleagues” regularly, no matter one’s rank, and break down people’s “ego barriers,” like a wildebeest might find himself taken down by a hyena on a truth-seeking mission.

Many people who viewed Principles were quick to write Bridgewater off as “a cult,” also used by some current and former employees (who were not swayed by testimonials by staff who confessed to love the culture at B-water, which changed their lives). Pay them no matter. Intrigued by the philosophy but unsure how it’s put into practice? Here’s a basic example of how to use Principles to get employees to see the error of their thought processes, as observed by New Yorker writer John Cassidy.

From the back of the room, a young man dressed in a black sweatshirt started saying that a Chinese slowdown could have a big effect on global supply and demand. Dalio cut him off: “Are you going to answer me knowledgeably or are you going to give me a guess?” The young man, whom I will call Jack, said he would hazard an educated guess. “Don’t do that,” Dalio said. He went on, “You have a tendency to do this…We’ve talked about this before.” After an awkward silence, Jack tried to defend himself, saying that he thought he had been asked to give his views. Dalio didn’t let up. Eventually, the young employee said that he would go away and do some careful calculations.

Or how to make a decision regarding a possible promotion.

Jensen, McCormick, and Dalio discussed the possible promotion of an internal candidate to a senior-management role. McCormick, a soft-spoken forty-five-year-old who studied engineering at West Point, argued that the candidate’s prior experience at a big Wall Street firm indicated that he could probably do the job. Dalio disagreed. An investment bank is a “totally different world,” he said. But, rather than continue the discussion, he asked one of his assistants to call in the candidate. One rule of radical transparency is that Bridgewater employees refrain from saying behind a person’s back anything that they wouldn’t say to his face. The man arrived and stood before Dalio’s desk. Dalio explained what the discussion was about and said, “I don’t imagine that you would be a good fit for the job.” The man took a seat, and Dalio and McCormick continued their discussion about his qualifications. The candidate explained his experience on Wall Street and said he thought he could do the job well. Dalio leaned back in his chair, looking skeptical. The employee didn’t get the promotion.

Or exorcise the “emotional” out of someone, like recent hire “Peter,” who came to Bridgewater from a “big financial firm” and required a complete overhaul.

All nine members of Bridgewater’s management committee were sitting at a long wooden conference table. Peter, a lean man with fair hair, sat stiffly near the front: he looked like somebody anticipating a root canal. Jensen and McCormick were nominally in charge, but Dalio took over, telling Peter that, during a previous management meeting, he had answered emotionally in response to questioning from Jensen. “This is a common thing when somebody’s getting probed,” Dalio said. “Because the amygdala gets stimulated and you have that emotional reaction.” Peter agreed that he had become upset, especially when he sensed he was being accused of misleading his colleagues. “I felt in some sense my integrity was being attacked,” he said. “That’s when things spiralled out of control.”

Dalio walked to the front of the room, where he wrote on a whiteboard, “felt,” “integrity,” and “misled.” “?‘Felt’ is the key word here . . . and it’s a challenge for people,” he said. After a bit more discussion, he went on, “What we’re trying to have is a place where there are no ego barriers, no emotional reactions to mistakes. . . . If we could eliminate all those reactions, we’d learn so much faster.” Another member of the committee, Eileen Murray, intervened to say she assumed that Peter had not encountered this type of conversation at his previous job. He confirmed that he hadn’t. Murray nodded sympathetically. “When I first came here, I was like, ‘What the hell is going on?’ ” she said. Dalio wasn’t finished. He suggested that the problem was that Peter had an idea of how things should be handled, and when the reality turned out to be different he hadn’t been honest with his colleagues. “The issue is that you are not freely releasing those beliefs,” he said to Peter. “Unlike a lot of companies, where you are meant to sit there and be quiet . . . here we respect your notion that you have a point of view. . . . Your responsibility is to say, ‘Does it make sense to me?’ And if it doesn’t make sense don’t keep it bottled up.” Dalio went on, “I’m saying, just let it flow, man.”

Peter said he thought it was understandable that somebody new to the firm would react under stress as he had. Still, he added, “If I had to replay this thing again, I’d be much more open with my thoughts.” “What would you say the duty of a leader is?” Dalio asked him. Peter replied, “The duty of a leader, first and foremost, is to be transparent.”

And speaking of leaders, a title change for the CEO means Dalio is about to take Bridgewater to the next level. While the past 36 years would be considered a success by any measure, the next 36 will make them look like child’s play, as Dalio will be devoting less of his time to investing/bull shit paperwork and more to driving the radical truth bus.

“I’m stepping back a little: I’m going to a minister/mentor role,” Dalio said, comparing himself to Lee Kuan Yew, the longtime Prime Minister of Singapore, who relinquished his post in 1990 but even today retains great influence. This month, Dalio is formally giving up his co-C.E.O. title in favor of “Mentor.

Buckle up.

Mastering The Machine [New Yorker]

Related: Bridgewater Employees Speak Out: What Bridgewater Has Done For Me
Earlier: Bridgewater Associates: Be The Hyena. Attack The Wildebeest.

**Or as the New Yorker puts it, “picked up a copy of”.

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69 Responses to “Bridgwater Associates Truth Probings Are About To Get Turbo-Charged”

  1. Guest says:

    MD at UBS > Bridgewater disciple n

  2. CoveredLong says:

    Re:u00a0 Types of probing:u00a0 turbocharged > supercharged > nitrous > vtec > octane booster > dice in the mirror > CFA

  3. Anonymous says:

    Patriarch was the first fund to use “just let it flow man” to perpetuate success.nnL Tilton

  4. Ray Dalio says:

    More pills please!

  5. Anonymous says:

    Newu00a0Associate: Mr Dalio, I think a fire has started in the utility closet.nRay: You “think”.nNA: It’s a highly educated guess based on several highly correlated data points.nRay: Such as?nNA:u00a0 The fire alarm has sounded.nRay:u00a0 Is it not possible that it is simply a test?nNA: Also, I smell smoke coming from that area.u00a0nRay:u00a0It’s probably that idiot Peter burning his popcorn again. *waves* Hey Peter!nNA: So that’s it?nRay: *sighs*u00a0 I knew I shouldn’t have hired someone from Goldman Sachs.u00a0 The truth is easy to discover.nNA:u00a0 How?nRay: *glares*nNA: You want me to open the utility closet door!!??nRay:u00a0 *nods* It’s the only way to truly know, man.

  6. Anonymous says:

    Bess, can you also pick me up a copy of their asset listing?

  7. Guest says:

    Funny how we’re not hating for Bess’s length yet let the storm come down on Matt.nn-Previous commenter who was annoyed at Matt’s length yet does not seem to have a problem with Bess’u00a0

    • Anonymous says:

      I wasn’t on the comments last week but I’ll just say I think Matt’s doin’ great.

    • Guest says:

      Funny how you’re an idiot.nn(People don’t hate on length for length sake. If a story is interesting, like the above, no one cares how long it is. And not sure what you mean re “the storm,” as the majority of people have commented that they like Matt’s stuff.)

    • Confused Commenter says:

      I always thought Bess preferred girth to length.u00a0

    • Guest says:

      Bess could put up a 9,000 word post (and has occasionally) and we’d read the entire thing without “hating” because she’s an incredibly talented storyteller with an amazing sense of humor. Tends to fend off the “too long, didn’t read” comments. Any other questions?

  8. Casey_anthony says:

    Ray, when the ECB finally agrees to start restructuring, and you need to find hidden assets, call me, I know where the bodies are buried.

  9. Guest says:

    Fortunately for RD,u00a0this country only institutionalizes the poor and crazy.u00a0 The rich and crazy get a pass.

  10. 25th Hour Trader says:

    “From the back of the room, a young man dressed in a black sweatshirt started saying that a Chinese slowdown could have a big effect on global supply and demand.”nExcellent analysis. u00a0I wrote a research piece for clients last week that noted the strong linear relationship between rainfall and the number of umbrellas seen in public.nn-Trader who agrees w/ Dalio for pressing the analyst for a little more substance. u00a0BTW a hypothesis w/o a trade (short AUD/USD and/or base metals) is useless.u00a0

  11. Sealord_Hubbard says:

    I really like the cut of this guy’s jib.

  12. Old Hyena says:

    RD: u00a0So you have a view on China. u00a0Can you migrate with it across the stream and avoid the crocodiles?u00a0nnMacke: u00a0I’m going to talk to you like a child. u00a0Nod if you’re with me.nnRD: *Nodding* u00a0 My young transparenteers are child-like in their views. u00a0Diapered with cloth for economic benefit but pampered none the less.nnMacke: u00a0After 34 minutes of this chat while you’re talking, if you think you’ve gone crazy, nod.nnRD: u00a0Is crazy a reality of your opinion? Can you be factual without feeling challenged? u00a0Can your thoughts traverse the flowing river oif risk on the the backs of the wildebeest while it swims from watery threats?u00a0nnMacke: u00a0You are starting to feel the bandaid come off.nnRD: u00a0Catbox!!nnMacke: u00a0Dismissed auto people nod and drown in the waters where the reptiles mate. u00a0I don’t know.u00a0

  13. Anonymous says:

    Personality cult: check.nnWierd manifesto: check.nnHorde of followers that believe in both: check.nnShort term success: check.nnPlace soundsu00a0a lot like the Democratic People’s Republic of Korea. u00a0

  14. Former_DNC_Bundler says:

    or every Obama fund-raiser ever.

  15. MatterOfFracked says:

    Is this post “about” “something”, at least in comparison to its farming of its source? Let’s start the truthiness there. Also, “Pay them no matter” is not, at the level of deep, carefully investigated truth, a “sentence in English”, although it makes a fantastic Freudian slip.

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