Ray Dalio Steps Down from Co-CEO of Bridgewater

Dalio, who oversees the assets of the world's largest hedge fund, will become co-CIO.

Ray Dalio will step out of the co-CEO role, and back into an investing role at Bridgewater, the largest hedge fund in the world, in mid-April, according to a client note released on Wednesday. Taking his place will be David McCormick, Bridgewater’s president of eight years, who will be stepping up to join Eileen Murray in the co-CEO role. Jon Rubenstein will be leaving his co-CEO role, but will remain a consultant.

About ten months ago, Dalio stepped into the co-CEO role to help Greg Jensen.  Dalio wrote in the client note, “Handling both a co-CEO job and a co-CIO job is tough. For that reason, we decided that Greg would shift his full attention to the co-CIO role.” Subsequently, Dalio will become co-chief investment officer along with Bob Prince and Greg Jensen.

The firm manages some $103 billion in hedge funds. Dalio noted that he has been transitioning the firm for the past seven years. “When I was about 60 (seven years ago), Bridgewater started its management and equity transition, with a goal of having others replace me. As explained at the time, we allowed for this transition to take up to ten years because we knew that getting things right would take some adjusting of the ways we did things and some trial and error,” Dalio wrote in the client note.

Below is the full client note he also released on LinkedIn:

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Because our communications often find their way into the media in distorted ways, we wanted to share publicly the below letter we sent to our clients this morning.

As you know, Bridgewater has a unique culture that works exceptionally well in our industry. Because consensus views are built into market prices, in order to beat the markets, we need independent thinkers. These independent thinkers need to have thoughtful disagreements and ways of resolving them. For this reason, our culture is a well-thought-out idea meritocracy. It requires people to be radically truthful and radically transparent with each other. This radical truthfulness and radical transparency includes looking at people’s mistakes, problems, and weaknesses as well as their strengths and talents.  Doing this isn’t always easy, especially at first, but dealing with these mistakes, problems, and weaknesses is what fuels our improvements. Some people love this forthright way of operating and wouldn’t want to work anywhere else, while others dislike it and leave. But nobody doubts that this unique culture is the force behind Bridgewater’s unique success over the last 40 years. 

Consistent with this idea-meritocratic way of operating, Bridgewater is run by a number of capable partners who can assess things independently and work together to come to the best decisions. This partnership model, rather than a single leader model, is why we have co-CEOs to run the business parts of Bridgewater, co-CIOs to run the investment parts, and co-chairmen to make sure the co-CEOs are doing a good job. We also have a team of others in key management roles who thrash things out, back each other up, and reduce key man risk. We are very fortunate to have such a broad and deep team, especially at this time of transition. 

Changes Coming in April

Any organization run by a 60+ year old that says that it isn’t in transition is either naïve or disingenuous. For that reason, when I was about 60 (seven years ago), Bridgewater started its management and equity transition, with a goal of having others replace me. As explained at the time, we allowed for this transition to take up to ten years because we knew that getting things right would take some adjusting of the ways we did things and some trial and error. We have done what we have said we would do, and we have kept you informed. The purpose of this note is to continue doing that.

I am happy to report that my transition out of management will be complete as of April 15th

As a reminder, ten months ago I temporarily stepped back into management as interim co-CEO for a one-year stint in order to help transition Greg Jensen’s co-CEO responsibilities. Handling both a co-CEO job and a co-CIO job is tough. For that reason, we decided that Greg would shift his full attention to the co-CIO role. I will be doing the same in April. As I love markets, I’m excited about this change and expect to remain a professional investor at Bridgewater until I die or until those running Bridgewater don’t want me anymore. So Bob Prince (who has been with Bridgewater for 31 years), Greg Jensen (who has been with Bridgewater 21 years), and I (who have been here 42 years) will remain focused on investing as co-CIOs. In addition, Osman Nalbantoglu (who has been at Bridgewater for nine years) continues to run our portfolio implementation and trading/execution areas, and eight of our key investment research associates will step up into senior researcher roles. These 12 people are supported by hundreds of researchers and technologists, giving Bridgewater the strongest investment team the firm has ever had and a deep bench of experienced investment professionals.

I can now permanently transition out of the interim co-CEO role because we now have confidence in the people and processes that will lead Bridgewater’s management without me. David McCormick will be stepping up to join Eileen Murray in the co-CEO role. As you know David, who is currently President, has been at Bridgewater for eight years and has been a critical part of our success. Over the last year, he, Eileen (who has been at Bridgewater for eight years and a co-CEO for four years), and I ran the business part of Bridgewater with Co-CEO Jon Rubinstein, who was new and focused mostly on technology.  We worked together to build-up our governance, management support, and metrics systems in a way that has demonstrated that David and Eileen can run Bridgewater without me as a co-CEO. Most importantly David, Eileen, and the people who support them have a proven understanding of Bridgewater and its unique culture, and they treasure these things.  

Jon Rubinstein will step out of the co-CEO role and will be leaving Bridgewater, though he will remain an advisor.  While over the last ten months Jon has helped build a plan to re-design our core technology platform and has brought in a group of extremely talented executives to build out our technology leadership, we mutually agree that he is not a cultural fit for Bridgewater. As a result, we have put in place a plan for him to transition to an advisor role in April. I really do appreciate Jon’s hard work and contributions.

Carsten Stendevad, the former CEO of the large Danish pension fund ATP, is joining Bridgewater as part of our new “Bridgewater Senior Fellowship Program,” which will bring highly distinguished individuals into Bridgewater for a year to explore what our culture is like and lend their expertise and insights to our organization. We expect a limited number of such special people to join this program in the future. 

And as previously announced, John Megrue joined me as a co-chairman on January 1st. John has been a leader in the private equity industry for over 30 years and is currently chairman of Apax Partners U.S. He brings with him a practical understanding of board governance.  Bridgewater’s oversight board now consists of current executive management members and former senior executives, as well as outsiders, which we believe is the right balance for strong long-term governance.

Revoking Dodd-Frank Transparency Provision Sparks Corruption Discussions

Bill would require disclosure of payments to foreign governments and possibly spotlight unaccounted revenue, but could give foreign governments an advantage.

A debate about payment disclosures to foreign governments is brewing as a result of President Trump signing a bill that repeals a SEC regulation mandating energy companies and others in the natural extraction business to disclose payments made to foreign governments.

The revocation of the SEC rule is raising discussions about corporate transparency, its impact on shareholders and whether it fosters corruption in foreign governments that then foster poverty and terrorism. 

The controversial rule Section 1504 of the Dodd-Frank Act required the SEC to adopt a rule that mandates resource companies under SEC jurisdiction (both US and non-US) to disclose the type and amount of payments they make for each resource development project, plus the total of payments made to each government.

The measure to repeal Section 1504 passed by a vote of 52-47 strictly according to party lines and was done in a pre-dawn vote on Feb. 3. The revocation of the transparency provision was done by the Trump administration to overturn Obama-era rules on “excessive regulation,” which Trump said is impairing job creation and corporate competitiveness. According to The Hill, the vote is “a major win for oil producers and other companies in extractive industries. 

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But the repeal has become the focal point for more discussions about corruption, terrorism, corporate governance, transparency and shareholder rights that have all more or less broken down along the lines of Democrat and Republican philosophies.

Corporate corruption is certainly not new. The British East India Trading Company obtained duty-free treatment for its goods exported from the Far East in the 1600s by bribing foreign rulers. A World Bank Report from 2016 found a strong link between poverty and corruption that affects everyone. “Corruption is stealing from the poor, and that hurts efforts to promote inclusive growth and shared prosperity. By its nature, corruption undermines the integrity of society, damages equal access to opportunity, increases poverty and invites fraud and corruption,” the World Bank said. 

Section 1504 of Dodd-Frank required oil, natural gas and mineral companies to report payments made to foreign governments. Congress and President Trump’s decision to eliminate it can fuel corruption and hinder the ability of citizens to benefit from natural resource extraction revenues, some contend. The rule was contentious even when it was being proposed. The SEC originally issued Section 1504 (also known as the Cardin-Lugar amendment) in August 2012, but it was delayed after a lawsuit challenging the rule was filed by the American Petroleum Institute and other business groups. A new rule was issued on June 27, 2016..

Corruption is a Global Issue 

While the issue of transparency and corruption is contentious in the US, it also is a major global issue. A report in Foreign Affairs said that since Section 1504 was enacted, 30 countries have passed similar disclosure rules for mining and other companies that extract natural resources. “And because large-scale corruption is a driver of insecurity, conflict, and terrorism, repeal of the SEC rule makes Americans less safe,” according to Kate Bateman of the World Resource Institute (WRI). Corrupt governments , such as those in the Ukraine and Nigeria, also finance terrorism, which makes it unsafe for Americans, she contended.

 In another report, the WRI said that revoking the provision would have forced oil companies to disclose payments made to the government of Angola, for example, for the right to extract oil, or the government of Turkmenistan to disclose who paid it to get the rights to access the nation’s gas reserves. “Secrecy around such payments can fuel corruption and hinder the ability of citizens to benefit from government revenues,” the WRI said.

More specifically, the group cited a report from Nigeria’s auditor general that found $16 billion in oil revenue was unaccounted for in 2014 alone. Section 1504 was intended to increase transparency about errant funds. This regulation would “help citizens understand the financial arrangements their government has entered into, track the use of these resources and hold officials accountable.” One of the leading industries against Section 1504 was the oil industry, which argued the SEC rule “would damage their competitiveness.”

 Also weighing in against the revocation was Maxine Waters (D-Calif), ranking member of the US House Committee on Financial Services, who wrote that “striking Section 1504 would mean that Big Oil companies like ExxonMobil would be able to continue their questionable dealings with corrupt parties, such as Vladimir Putin and Russia. In addition, ExxonMobil, which was headed by Trump-nominee for Secretary of State Rex Tillerson, led the fight in opposing Section 1504 when it was first introduced. Clearly, they didn’t want the American people to know what they were up to,” she said.

Alternately, the Heritage Foundation said the SEC’s transparency requirements “do nothing to further the securities laws’ purpose of protecting shareholders or providing them with information that is material to their investment decisions.” In an article, David Burton, a senior fellow in economic policy, said the transparency requirement was “politically motivated” and did not serve shareholders’ interests. In his paper, Burton even found that the SEC’s disclosure laws “increased violence from armed groups that “looted civilians and committed violence against them. This is because Dodd–Frank created an incentive for armed groups to find alternative sources of revenue. They moved away from conflict minerals to unregulated sources of mineral revenue or to violent looting of civilians.”

Similarly, Americans for Tax Reform said the disclosure provision adds “to an already unreasonable compliance burden on US companies. The SEC’s own estimates found that the ongoing compliance costs of the resource extraction rule would be between $173 million and $385 million annually.

“Additionally, by requiring US companies to publicly disclose proprietary information under the rule, the SEC is giving America’s international competitors an enormous advantage in the global market. Such unnecessary and self-inflicted regulatory wounds only serve to reduce American prosperity by harming US competitiveness and consumers in the long run.”

 

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