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Bridgewater’s Assets Plunged By $25 Billion During March, April Rout

Courtesy of ZeroHedge View original post here.

At the end of January, when the news media was reporting of the first cases of an odd pneumonia-like diseases spreading in Wuhan, Ray Dalio appeared on CNBC during the annual billionaire pilgrimage to Davos, where he made a comment that would soon come back to haunt him: “You can’t jump into cash. Cash is trash.”

Little did Dalio know that just one month later the global economy would grind to a halt, the US stock market would suffer the biggest drop since the financial crisis, the Fed would announce the biggest ever bailout of corporate America and Congress would unleash a fiscal stimulus program the likes of which have never before been seen.

Which in retrospect was a mistake, because with Dalio clearly oblivious to the imminent risks (not that he was alone in failing to anticipate the shock that the covid pandemic would unleash on the world) his hedge fund – Bridgewater – was not properly positioned for what was about to come. And it cost him dearly: according to Bloomberg, assets under management at Bridgewater, the world’s formerly largest hedge fund until various central banks took over that title, “suffered a 15% drop in assets under management during March and April in the wake of heavy losses at its flagship trading strategy.”

Assets fell by $25 billion to $138 billion at the end of April from $163 billion at the end of February, according to a May 29 filing first noticed by Bloomberg.

There was a silver lining: almost all of the decline was due to a drop in asset values and was performance-driven rather than client withdrawals, which means that as stocks rebounded in May and eventually turned positive on the year before the recent turbulence, Brigdewater should have recovered most of its P&L. Only that may not be the case, because whereas retail investors flooded the market around the time of the March lows using billions in government handouts to buy stocks, risk-parity funds, such as Bridgewater’s All Weather strategy, have been notoriously slow to relever judging by their record low beta to equities, and as a result, it would not surprise us if the world’s biggest hedge fund failed to recoup most of its March/April losses.

Things may be different at the more discretionary Bridgewater Pure Alpha II, the firm’s largest fund, which was down 20% through the first four months of this year, but may have followed the recovery closer. In mid-March Dalio admitted the challenges faced by his hedge fund, saying the fund was hit by the coronavirus at “the worst possible moment,” explaining that the firm had positioned its portfolios to profit from rising markets. At the time, Dalio assured investors that the firm would provide them with “liquidity rather than prohibit” withdrawals, although it wasn’t immediately clear if the fund was hit with mass redemptions. According to Bloomberg, the firm which offers monthly liquidity to clients, suffered several defections this year, including a decision by the Virginia Retirement System to pull $178 million from Bridgewater Pure Alpha II effective at the end of April.

A Bloomberg source characterized redemptions this year as modest and consistent with levels from previous periods. However, in an indication of just how serious the AUM drop is, Bloomberg adds that Bridgewater is again accepting capital from people who have been on a waiting list and from existing clients who want to add to their investments in order to fill the hole from the drop in assets. The firm reopened its Pure Alpha strategy to new investors at the end of March for the first time since 2007.


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