Ray Dalio

CIO Exclusive — Ray Dalio: How Bridgewater Will Succeed Without Me

The hedge fund king reflects on his seven-year transition, prepares for his eventual departure.

It is written in Joseph Campbell’s “The Hero with a Thousand Faces” that there comes a time in every hero’s journey where, having achieved the ultimate transformation, they must live freely without risk.

While some form of risk will always be intertwined with investing, Ray Dalio, founder, chairman, and co-CIO of the $160 billion Bridgewater Associates, the world’s largest hedge fund, felt that call in 2010.

In a year where Dalio predicted the European debt crisis and reached out to policymakers to help mitigate the issue, while returning nearly 45% and 28% in both of Bridgewater’s Pure Alpha funds as well as roughly 18% in their All Weather portfolio, he also decided to make his company-wide principles publicly available for the first time. As of last month, Dalio’s works are now available in the first of two books titled “Principles.”

“I was sixty-years-old and had been running Bridgewater for thirty-five years,” he writes. “Though I expected to be good for another ten years or so, I was ready to put my energy into other things, My plan was to step out as CEO while helping my replacements as a mentor, remain in my investment role, and take the time I gained from no longer managing the company to suck the marrow out of life, while I still could.”

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After confirming with company partners he would stay onboard the firm as a mentor (influenced by the leadership of Singapore’s first Prime Minister Lee Kuan Yew), Dalio began an “up-to-ten-year transition plan” on New Year’s Day 2011, announcing to the company, and subsequently its clients his decision to eventually step down as CEO, with co-CIO Greg Jensen and President David McCormick as his handpicked replacements.

Managing the “Ray Gap”

The early stages in preparation of the “Ray gap” were rocky, but necessary. Jensen and McCormick created a log of Dalio’s responsibilities and the different measures each person took to handling them. The agreed term for the gap would be “shaping,” which caused the Bridgewater founder to seek out and research fellow “shapers” (a term he coined for visionary individuals who pursue ventures that change the world at the defiance of others)— such as Steve Jobs, Elon Musk, and Bill Gates — for advice and personality assessments that would help the firm with recruiting and management.

Continuing this phase in 2012, Dalio began systemizing Bridgewater’s “idea meritocracy.” By gathering data on what makes people tick in order to better match them to responsibilities and reinforce good habits and good thinking, he would develop concepts that would become known as Bridgewater’s “Dot Collector,” Baseball Cards,” and “Pain Button” systems. The procedures and their time-sensitive natures were expressed in a November email to the company’s Management Committee titled “The Path Out: Systemizing Good Management.”

The first of which is a real-time information-gathering app used in Bridgewater meetings that allows people to see other’s constructive criticisms—and express their own in order to produce the best work. This ties directly to the “cards,” or employee profiles that reveal their “stats” on all areas they have been rated on. The collector then matches them to partners for projects based on each other’s strengths and weaknesses. In his Ted Talk, Dalio provides a visual demonstration of this procedure.

The “Pain Button” is another app where employees record their feelings upon experiencing distress that reminds them that they need to figure out how to resolve the issue.

“The ultimate goal of all this was to help the people I cared about be more successful without me, which was becoming increasingly pressing as life’s milestones continued to remind me of my stage in life” Dalio writes.

As he continued his transition from the second phase of life, “where others depend on us and we work” to the third, “where others no longer depend on us and we no longer have to work,” Bridgewater turned 40 in 2015. At the celebration, Dalio expressed what he had always tried to give his associates, and what he wanted for them when he was no longer available. What he wanted for them, he said, was not only a radical, open-minded community that governed itself through an idea meritocracy,  but one that also had the ability to reach out to the best minds in the world for advice. Although he felt that the transition was going smoothly, Dalio had no idea that the following year would be a tumultuous one.

While the firm’s investment arm was in good shape, other parts of the business, such as the technology and recruiting sectors, were becoming problematic. It became apparent that then-co-CEOs Jensen and now Eileen Murray were overstretched and overwhelmed. After the inability to resolve management issues became to a head, the resolve came to a vote from members of Bridgewater’s Management and Stakeholders Committees. One of the most important decisions reached was for Jensen to step down from his co-CEO role and to focus on his co-CIO role with Dalio and Bob Prince. This also caused Dalio to temporarily reassume the co-CEO position.

“I realized that I had handed Greg too heavy a load in expecting him to carry out both co-CEO and co-CIO roles,” Dalio writes. “I regret that mistake more than any other…because it hurt both of us and the company. I had not only mentored Greg, but he had been like a son to me for nearly twenty years.”

The Final Countdown

After learning a lesson in humility about assuming which people would be best suited for which areas of leadership, Dalio reached out to management experts for advice on governance. In his book, he notes that Jim Collins gave him the greatest advice and addressed Dalio’s failures that led to 2016’s monkey wrench. He advised Dalio to have a  governance system that would act as a back-up plan to the executives, in case they couldn’t fulfill their roles. Although Bridgewater is still building its perfect governance system, Dalio was able to further progress his transition this past April, where he officially stepped down as co-CEO. Although he is still not officially out of water, governance has become a top priority for the co-CIO and chairman.

“What I’m doing is trying to be a good mentor and a good chairman. I’m trying to make others succeed without me well. That’s primarily from the management point of view,” Dalio told CIO. “From the investment point of view, I’m thoroughly immersed in markets and economics, and …so I’m helping them that way. Even there too, I’m helping them be successful without me. That’s my over-marking objective.”

According to Dalio, one of the most important chapters in the book is about the “5-Step Process,” a procedure he describes as a personal evolutionary process that, if done well, will almost guarantee success in any element. They are as follows:

  1. Have clear goals.
  2. Identify and tolerate the problems that stand in the way of your achieving those goals.
  3. Accurately diagnose the problems to get at their root causes.
  4. Design plans that will get you around them.
  5. Do what’s necessary to push these designs through to results.

Even though his career is winding down and the second installment of “Principles” is scheduled for release next year, the hedge fund king reiterates in both spoken and written form that 2017 completes his Campbell-esque returning of the boon.

“This is a year in which I’m really thinking about all aspects of my life to make sure that others are successful without me,” he said. “And so, it’s an appropriate time to put these principles out for that reason.”

However, like Kevin Costner’s Billy Chapel to baseball, his love of the investment game will never fade.

“This is my year of my transition,” Dalio said. “When I take the transition, I’m not transitioning out of investments because I love the game, I’ll play it for the rest of my life and I’ll play it at Bridgewater.”

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NYC Pension Funds, RBC GAM Access Capital Team up for $450 Million Affordable Housing Plan

Investment includes first-of-its-kind program to support veterans.

To help provide affordable housing throughout the five boroughs, the New York City Pension Funds will invest $450 million to purchase and support non-predatory mortgages for New Yorkers and veterans.

The $450 million will be invested through a separately managed account with RBC Global Asset Management’s Access Capital Community Investment, which includes a renewal of $300 million that had been previously invested and the addition of $150 million in new funds. According to co-founder and managing director Ron Homer, RBC GAM Access Capital has been managing money for the city since 2007.

The investment, which looks to support and create “tens of thousands of affordable single-family homes and units citywide,” will also include a first-of-its-kind program to support affordable housing for veterans.

“We have to work together to make New York City more affordable—and we’re taking action in innovative ways through the Pension Funds. We’re demonstrating that you can simultaneously protect the retirements of hardworking New Yorkers while mitigating one of our city’s long-term challenges,” New York City Comptroller Scott M. Stringer said in a statement. “We’re proud to have helped create and preserve over 100,000 affordable units citywide, and even more thrilled to launch a new effort to support our veterans. Through this initiative, we’re helping everyday families, adding long-term affordable housing, and strengthening our pension funds.”

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In partnership with RBC GAM Access Capital, the Comptroller’s office will invest at least $5 million each year in financing mortgages guaranteed by the Department of Veterans Affairs to veterans and their families living in New York City. The goal is for 10% of all capital invested through RBC GAM Access Capital to go these mortgages. In addition, one of the main intentions of this Veterans Administration (VA) program is to help more multi-family buildings and co-ops qualify  for the loans.

“That was our idea,” Homer told CIO. “We were doing some work with the federal home loan bank, and they started to work with smaller banks to provide access to the Ginnie Mae securitization window. They’ll buy out individual loans and the federal home loan bank will hold those loans on their balance sheet until they have a large enough pool, and they’ll package them and they’ll sell them off.”

The idea for implementing the VA program came about when Homer was talking to program organizers and inquired about which type of loans were being purchased. After learning that VA and FHA loans were on the agenda, he mentioned that he’d love to be involved in something like that, which would eventually become the veterans deal. Homer admitted that he has a soft spot for VA loans, as his father, a World War II veteran, was able to not only become a citizen based on his service, but able to buy the Brooklyn home he grew up in through a VA mortgage. Homer and his associates were also aware from published articles that New York City had “less than 300 VA loans in 2013-2014,” which prompted his push for more awareness and support of VA loans.

“It’s a great program because it’s no down payment, you get some of your closing costs, [and] your income to loan lenders are a little higher. It’s a program that allows veterans to buy a home quicker than if they had to go conventionally, but they also happen to perform very well,” Homer said. “The combination of there being a need for it in New York City, the publicity surrounding it that made us aware of that need, and the city understanding that need was very helpful.”

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