Last Thursday, Bloomberg published a little item based on a report in Grant's Interest Rate Observer in which Jim Grant shared some bearish views on Bridgewater.
While Jim Grant being bearish on anything is obviously not very newsworthy, his criticism of Ray Dalio being distracted from Bridgewater's main business by his recent book tour is trenchant. The Bloomberg post was short and to the point, digressing only once to drop this little aside:
Another concern that Grant cites is Bridgewater’s disclosures in government filings on assets, fees and ownership -- or lack thereof.
That piqued our interest. We weren't surprised that Bridgewater's regulatory structure is purposefully convoluted and opaque, everything at Bridgewater is shrouded in mystery. Not because it's a cult, though...Bridgewater is totally NOT a cult, you guys. What got our curiosity going was seeing that someone took the time to really have a shot at Bridgewater without just yelling "Ponzi scheme!" like a loon.
Long story short, we had to read this report from Grant's. And now we have.
It reads less like a bearish take on Bridgewater than it feels like an attempt to pull back the curtain on Ray Dalio's Mystery Kingdom in the Woods, but then finding that there are so many layers of fabric and folds that you can't quite get a grip. Then you realize that the curtain was designed for just that purpose. And then you get really angry.
In addition to some jaded, uber-capitalist swipes at Dalio's interest in China and some fun examples of his creepingly Messianic sense of self, Grant and his deputy editor Evan Lorenz make it clear that Bridgewater's dogma of radical transparency does not extend to its views on regulatory disclosure. Those are apparently so dim that they border on total darkness.
Grant's took a gander at some of Bridgewater's filings and found them to be...let's say "convoluted."
How convoluted? Well according to Grant's, Bridgewater's Form ADV is less forthcoming about management and fees than the one submitted by Renaissance Technologies. So...it's pretty dense.
We don't want to share too much of what Grant's published - they should put it out there for free as far as we're concerned - but we will share enough to tickle you with a feather.
The most fun little tidbit in our estimation is the "unique" relationship that Bridgewater enjoys with its auditor:
The “related party information” schedule of the Bridgewater ADV form records the fact that Bridgewa-ter lends money to its auditor, KPMG, LLC. Or, more precisely, Bridgewa- ter owners with a greater-than-10% ownership stake in the Dalio firm are creditors to KPMG.
What, your hedge fund doesn't have a circuitous transactional relationship with the company tasked with making it behave? This is just the idea meritocracy at work, folks. And don't worry, according to Grant's, it appears as if Bridgewater and KPMG have both looked into the vagaries of the SEC lending rule and decided that it doesn't apply to them. So...cool!
Grant's also reminds us of that time Bridgewater permanently lent 91 people to BNY Mellon. People that BNY put to work in its custody and prime brokerage services...of which Bridgewater is a client. The ballsiness of it all remains breathtaking.
After parsing Bridgewater's baroque asset structure, Grant's takes a deep dive into a seemingly innocent question:
Who, then, owns Bridgewater? The ADV report lists five Dalio family trusts, each holding at least 25% but less than 50% of Bridgewater, something that seems mathematically difficult. Two entities Bridgewater Associates Intermediate Holdings, L.P. and Bridgewater Associates Holdings, Inc. are each noted as holding 75% or more of Bridgewater.
Hedge fund ownership is rarely a straightforward situation, and many might think it unfair of Grant to take a shot at Bridgewater's. But it seems more even-handed when you stand back and remember that Bridgewater is as famous for its success as it for its sui generis culture and the cult of personality that created it. If Ray Dalio wants his Principles to be applied in healing this broken world, his hedge fund should not be structured in a manner so boldly enigmatic that it makes James Simons and Robert Mercer blush with envy.
Grant's should publish this thing in the open because it takes a hard look at parts of Bridgwater that aren't often discussed. It's not an earth-shattering or conclusively damning investigation but it does a great job of conveying the notion that Ray Dalio is out there in the woods because that's where he can be himself, and play by his own set of very changeable rules.