the global

INVESTOR

awards for
excellence
2003
Bridgewater
Associates
COVER STORY

Global bonds winner

2003:
Bridgewater Associates
In hard times, true class stands out. The winners of Global Investor’s eighth annual awards for investment
excellence have all succeeded in prospering despite difficult market conditions. Not only has their
performance been robust, but their businesses have continued to grow at a time when many of their
competitors are struggling to hold on to clients and assets. On the face of it, the winning firms have little in
common. However, Global Investor’s five independent judges were searching for some common traits.
Not only did performance have to be consistently strong, but it needed to reflect a clear and concise
investment process and philosophy. Moreover, that process had to have elements that made the firm stand
out in an increasingly monotone market. The judges were also looking for a stable investment team, with an
incentive to stay at the firm and keep on performing well. They also wanted to see evidence that the business
managers had a clear vision for the direction of their product, and could translate that into business growth.
The winning firms represent the best-of-the-best across 14 asset classes. James Rutter, editor
Global Investor’s awards for investment excellence are chosen by a panel of five independent judges, each
with many years experience evaluating, advising or managing asset management businesses. Their decisions
are based on brief submissions from the short-listed firms. The short-lists are compiled by surveying
investment consultants around the world. The judges in 2003 were: Chris Acito, Casey, Quirk & Acito;
Marc Buffenoir, Morningstar Europe; Angela Doherty, Unilever Pension Scheme; Blu Putnam,
Bayesian Edge Technologies; and Kim Yates, Principal Search.

THIRTY YEARS AGO, Ray Dalio left Harvard Business School
and with a few of his MBA buddies set up a business called Bridge-
water Associates. They were pursuing opportunities in various
exotic overseas markets (hence the name), but fell victim to the
1973 oil crisis. The business failed, but the company shell survived.
And when, a couple of years later, Dalio decided to try his hand at
the money management game, he revived the name of his first,
unsuccessful, venture.
It certainly proved to be second time lucky for both Dalio and the
Bridgewater brand. Concentrating solely on managing bond
and currency portfolios for institutional investors, the firm has
flourished from its base in Westport, Connecticut. According to
Dalio: “Growth has never been something we care about.” Like it or
not, however, Bridgewater has grown from a firm managing around
$5 billion in the mid-1990s, to one with $38 billion in assets today.
A big slug of that, approaching $12 billion, is in global bond man-
dates, and Bridgewater picked up net new assets of $1 billion
during the course of 2002.
As Dalio sees it, the capacity constraint to his business is not a
certain amount of assets under management, as Bridgewater’s
systematic investment process can be scaled easily. Rather, he says
FEBRUARY 2003 REPRINTED FROM GLOBALINVESTORMAGAZINE.COM
there is an optimal number of clients. More clients demand more
human resources, and as Dalio explains: “I don’t want the num-
ber of people to grow too much because that effects the culture.”
At present, Bridgewater has around one staff member for every
client, which means the firm still has only 100 or so employees.
Not only does every client have its own resource team, consisting
of portfolio managers, research, operations and client service, but
each mandate is also tailor-made to their requirements. “So we do
two things,” continues Dalio. “We focus on big customers with
more zeros on the end of their accounts, and we use technology at
the extreme, maximizing productivity.”
While designing mandates to suit precise client needs may be
viewed as a laborious and complicated task, Dalio argues that it has
helped Bridgewater to outperform other managers. “Tailoring man-
dates has been a huge competitive advantage. The traditional
approach to creating mandates often forces managers to make con-
centrated bets. Our goal is not to have any concentrated bets.”
Being one of the world’s leading currency managers is also a sig-
nificant advantage for Bridgewater. “Currency as an overlay
probably accounts for 30% to 40% of the value added,” says Dalio.
“And what’s nice about it is that it’s diversified alpha.” JR