Dalio Forges ESG Partnership with French Firm

Ray Dalio’s hedge fund firm, Bridgewater Associates, is launching a sustainability strategy in Europe, upping its exposure to the environmental, social, and governance (ESG) investing trend.

Bridgewater, the world’s largest hedge operation with $140 billion in assets, aims to open a sustainable fund next year. Dalio is no stranger to ESG efforts: In 2018, he and fellow billionaire Mike Bloomberg announced a marine biology venture focused on ocean conservation. Bridgewater previously has advised clients on ESG investing.

The Dalio firm has partnered with Lyxor Asset Management, a subsidiary of French bank Societe Generale, and will offer ESG investments in Europe—via a UCITS (Undertakings for Collective Investment in Transferable Securities) structure, a cross between a mutual fund and a hedge fund.

Lyxor already has $15 billion in ESG investments. The new joint endeavor’s investment philosophy will borrow from Bridgewater’s quarter-century-old All Weather strategy. That’s a flexible approach that seeks to profit in all kinds of economic circumstances.

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“The journey of scalable sustainable investing is a strategic priority for Bridgewater and our clients,” said Brian Kreiter, Bridgewater’s chief operating officer (COO), in a statement. “Using the same research process that we have developed over the last 40 years, we have built a systematic process to engineer both the sustainability and financial characteristics of portfolios.”

Bridgewater’s new strategy will invest along the lines set down in the United Nations’ Sustainable Development Goals, which aim to mitigate climate change, and also to fight poverty and inequality.

Dalio has long worried about the dire state of civilization. His new book, The Changing World Order, seeks to analyzes its woes and prescribes ways of dealing with vexing macro problems. In a recent excerpt from the book, posted on LinkedIn, he wrote that disorder is growing in the US, where “people and politicians are now at each other’s throats to a degree greater than at any time in my 71 years—and these struggles over wealth and power are becoming more vicious.”

How the Lyxor partnership fares will be interesting. ESG strategies have attracted criticism for years that they are not a winning investment credo. More recently, ESG’s defenders have argued that this investing approach heads off serious problems a company might have with ethics or environmentally destructive ways.

Bridgewater apparently has hit some rough patches of late, and suffered some client withdrawals, although ESG orientation appears to have nothing to do with this. Its flagship Pure Alpha II fund has lost 18.6% through early November, and suffered some client departures, according to Bloomberg News. On the other hand, the All Weather strategy returned 5.7% this year through November, the news service reported. Bridgewater hasn’t commented publicly on any of this.

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Tags: All Weather strategy, Bridgewater, ESG, Europe, Lyxor Asset Management, Mike Bloomberg, Pure Alpha II, Ray Dalio, Société Générale, UCITS

The percentage of all US state and local government spending used to fund pension benefits for employees more than doubled between 2002 and 2018, according to the National Association of State Retirement Administrators (NASRA).

NASRA said in a brief that the most recent US Census Bureau data shows that the share of state and local government spending used to fund pension benefits for state and local government workers jumped to 5.2% in 2018 from 2.3% in 2002.

Pension costs rose sharply after fiscal year 2002 after falling equally fast in the preceding years, according to NASRA, which said the increased rate of spending in 2018 was spurred by the largest annual increase in employer pension contributions since 2006. This included a $6 billion one-time appropriation from the California legislature and an additional $538 million from political subdivisions in California to reduce their respective shares of unfunded liabilities of the California Public Employees’ Retirement System (CalPERS).

The brief noted that while there was a sharp rise in pension costs as a percentage of state and local spending in aggregate, pension spending levels vary widely among states, ranging from just over 2% in Wisconsin and Wyoming to more than 10% in Connecticut and Illinois.

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NASRA said the variation in pension spending among states can be attributed to factors such as differences in pension benefit levels, variations in the size of unfunded pension liabilities, the level of commitment by the state and its local government plan sponsors to make required pension contributions, the portion of the state’s population that lives in an urban area, and the fiscal condition of government plan sponsors. NASRA said an analysis of state and local spending on pensions and the percentage of population residing in metropolitan areas within each state suggests that states with larger urban populations are more likely to experience higher costs for public pension benefits than states with smaller urban populations.

According to NASRA, state and local governments contributed, in aggregate, approximately $168 billion to pension funds in fiscal year 2019, which it said was the smallest annual increase in employer pension contributions since a decline in 2005. The reduced contributions are projected to lower the percentage of state and local direct general spending on public pensions to 5.05%.

NASRA also said that it’s important to consider the fiscal status of governments that sponsor public pension plans when measuring the percentage of state spending dedicated to pensions. It said that fiscal year 2018 was the fourth straight year state and local spending growth was above 4% following five straight years of growth below 3%. NASRA added that states with greater increased spending may be better able to absorb higher pension contributions than states with weaker or negative spending.

Additionally, the brief said that in fiscal year 2019, state and local government contributions to statewide retirement systems accounted for 78% of total pension contributions, with the remaining 22% belonging to locally administered systems. As a percentage of total spending, cities spent approximately 31% more than states on pensions over the 30-year period from 1988 to 2017.