Dalio Analyzing Trump for Future Controversy

Bridgewater's Ray Dalio comments on Trump’s Paris Agreement withdrawal and policies.

Ray Dalio, founder, chairman and chief investment officer (CIO) of Bridgewater Associates, expressed his concerns on President Trump’s policies—specifically regarding the Paris Agreement—in a LinkedIn post yesterday.

“Sometimes conflict produces better results and sometimes it produces worse results for the people who are pursuing it to get what they want,” Dalio wrote. “For example, if Donald Trump were optimizing for his own well-being through conflict, it’s entirely possible that he would undermine his own well-being because the retaliation could be more damaging to him than the cooperation.”

Dalio compares analyzing President Trump’s actions as akin to solving a puzzle. In his attempt to put the pieces together, he says he is comparing the President to populists of the past, leading Dalio to put a close watch on the way he and his advisories approach conflict.

“From the higher-level perspective, when faced with the choices between what’s good for the whole and what’s good for the part, and between harmony and conflict, he has a strong tendency to choose the part and conflict,” he said. “By ‘the whole,’ I mean the whole ecosystem, the whole world community, and whole of the US, and by ‘the part,’ I mean the part of the US that he is presumably trying to help.”

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The world’s largest hedge fund manager also examines why gray-area hopefuls may or may not choose to side with the President’s actions and their subsequent consequences, based on three key questions:  “1) what exactly is the part he’s trying to optimize for (e.g., American manufacturing workers) and at the expense of whom, 2) am I more aligned with that part he is trying to protect (e.g., American manufacturing workers) or more aligned with those who will lose out (e.g., immigrants, those who will lose benefits from his budget changes), and 3) will his path of conflict rather than cooperation be effective or harmful?”

Although Dalio says it’s possible that conflict can sometimes be a good thing, it’s very much a high-risk/high-reward path—not unlike Dalio’s work with hedges. That said, Dalio feels that the President should make more cooperative decisions and less controversial ones.

“I have to confess a personal bias that is opposite his—i.e., I’m inclined to optimize for the whole through cooperation in order to make the pie bigger, and then cooperatively and competitively divide up the pie,” Dalio says. “I believe that we are connected to our whole ecology, our whole world community, and our whole United States, such that it pays to be in symbiotic relationships with them—so, I’m concerned about his path. I am especially concerned about the consequences of his pursuing so much conflict. At the same time, I see some encouraging moves on his part (e.g., to pursue public-private partnerships to rebuild infrastructure).”

While no populist comparisons were directly named, he does mention how Bridgewater’s recent study “Populism and the Phenomenon” stresses the importance of watching how conflict is handled in the early days of a populist government.

Dalio also expressed his thoughts on China’s new FX policy, calling it a “smart move.” He feels the new policy is good because it demonstrates the Chinese government’s power, helps stabilize the yuan, and “produces a tightening that works well in conjunction with tighter monetary policies to tighten credit,” which Dalio feels is appropriate.

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Wal-Mart Shareholders Deny Prime Pension Plans’ Push for Change

Six pension entities’ shareholder suggestions fall on deaf ears at Wal-Mart’s annual meeting.

Despite their efforts to grant Wal-Mart shareholders proxy access and an independent board chairman, six titanic pension funds were unable to sway the vote in favor of certain proposals at the retail giant’s annual meeting last Friday.

The pension funds included the $322.3 billion California Public Employees’ Retirement System; $206.5 billion California State Teachers’ Retirement System; $189.4 billion Florida State Board of Administration; C$316.7 billion ($235.4 billion US) Canada Pension Plan Investment Board; $133.2 billion Texas Teacher Retirement System; and the C$175.6 billion ($130.4 billion US) Ontario Teachers’ Pension Plan. While five of the funds supported both proposals, the Ontario Teachers’ Pension Plan supported only the proxy-access proposal.

“We consider it (proxy access) a shareowner right. It’s increasingly being adopted by quite a significant section of the S&P 500. Small companies usually lag behind that adoption, but for companies the size of Wal-Mart, it’s significantly taken adoption. Independent chair is another fundamental governance concept that we typically endorse,” said Jacob Williams, corporate governance manager, FSBA. “When you have the strong chairman and the strong CEO, you have greater perspective for the company to have two separate individuals in situations where they can work with each other proactively, strengthening the equality and perspective of the board.”

The six plans also were against the compensation ratification of C. Douglas McMillon, Wal-Mart’s CEO and president, as well as four other named executives. McMillon’s total 2016 compensation was $22.4 million, a 13.13% increase from 2015’s $19.8 million.

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“We feel pay relative to performance is a key fundamental tenant for us. We had some concerns about the stringency of the compensation awards,” said Williams. “Really, for us it’s important that performance is aligned with the incentives of shareowners, not just management but also the shareowners returns. If the compensation metrics and the goals and the target levels are not stringent enough to motivate performance at the level to reward shareholders, that’s always a concern to us.”

Although the entities pushed for the proxy access, which would allow shareholders to nominate their directors, and independent chairman proposals, only 15% and 26% of shareholders, respectively, took their suggestions to heart. Eighty-three percent of shareholders voted in favor of the executive compensation proposal. According to a May report, proxy-advisory firm Institutional Shareholder Services also sided with the pension plans’ suggestions.

“If the board listens to shareowners over time, we may see some additional adoptions. It’s relative to the stock performance and the shareowners view of the board, which can change over time,” Williams said. “We weren’t sorely disappointed but we’ll keep an eye out for next time.”

Photo by: Wolterk

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