Ray Dalio Sides with Chinese Regulators over Jack Ma

Bridgewater Associates founder Ray Dalio

For investors skittish about China investments after the public debut of Jack Ma’s Ant Group was foiled by Beijing’s regulators, Ray Dalio has one message: Don’t be.

Diversifying into China is worth the risk, the Bridgewater Associates founder said at a webinar hosted this week by the National Committee on United States-China Relations. About 1,500 people tuned in to hear Dalio’s keynote speech at the China Town Hall.

“The Chinese are doing things to build confidence,” Dalio told moderator Stephen Orlins, president of the group. “They can undermine it, but I think that the diversification outweighs the risks.”

The hedge fund leader has been a proponent of China investments for years. China, which makes up about 17% of the world’s gross domestic product (GDP) and roughly a 4% share of global equity markets, has been opening its doors more and more to foreign investors.

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But the state-run government delivered a blow to business and investor confidence earlier this month when it pulled the plug on the world’s largest initial public offering (IPO) just days before its debut.

Yanking the Ant offering was a public dressing down of Ma, a strong supporter of open markets, after he lobbed critical remarks against the country’s financial regulators. For Western investors, it highlighted the risk of investing in a country where the state seeks to keep firm control over the private sector.

“At one point in my life, I was an investment banker who did IPOs,” said Orlins, previously managing director at Carlyle Group Asia. “If three days before an IPO, the deal was pulled, wow, that probably would have been the end of my career at that point.”

Still, Dalio defended the regulators’ decision. Skittish investors will have to learn how to navigate dealings with the state-operated capitalistic system, particularly as the world’s second largest economy expands its grip over the capital markets.

“I’ve had a lot of dealings with Chinese financial regulators and I could say that, generally speaking—not generally speaking, almost always speaking—I found them to be reasonable, caring, and highly informed people, who are now in an environment which is changing at an extremely fast pace,” Dalio said.

“Ant is a whole new concept, innovative concept, in terms of banking, and almost could replace or threaten the banking system in China. And it hasn’t yet been properly established in terms of regulatory review,” he continued.

“I think it was progressing too fast, and it had to be clear as to who the authority was,” he added.

Representatives for Bridgewater did not respond to a request for additional comment.

Dalio said investors should continue to engage with Chinese investments, whether state-owned or private, particularly as the country is poised to debut more mega-IPOs. This is a feat for China, given the challenges with the pandemic this year. TikTok’s parent company, ByteDance, is set for its public debut with a $100 billion valuation. Ride-sharing company Didi Chuxing has a $58 billion valuation. “There’s a plethora of wonderful companies,” Dalio said.

Bridgewater, which has spent more than 30 years engaging with China, has been expanding its presence in the country. It has offices in Beijing and Shanghai and has increased Chinese holdings in its All Weather global portfolio. In 2018, the hedge fund launched an All Weather China product specifically for Chinese holdings.

As of May, when it filed its most recent public disclosure, Bridgewater manages about $138 billion, a $25 billion drop from the $163 billion it managed in February before the market crash. Bridgewater lost about 15% in assets under management during the March and April downturn.

In his appearance, Dalio was also promoting his book The Changing World Order: Why Nations Succeed and Fail, which will be released this winter.

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UK-based life insurance and pensions company Scottish Widows is divesting at least £440 million ($583.9 million) from companies that it says have failed to live up to its environmental, social, and governance (ESG) standards, and warned that it will divest even more if companies don’t improve the sustainability of their business.

Scottish Widows, which has approximately £170 billion in assets under management (AUM), said it is working with its fund manager partners to begin divesting from companies with the highest investment risk based on their business practices.

The insurance and pension provider’s new exclusions policy takes aim at companies that earn more than 10% of their revenue from thermal coal and tar sands, manufacturers of controversial weapons, and violators of the UN Global Compact on human rights, which consists of 10 principles guiding corporate behavior on human rights, labor, environment, and corruption. The policy applies unless the size and type of investment means that Scottish Widows can influence change in the offending companies’ business models.

“As a large institutional investor, we have a vital role to play in shielding our customers from ESG investment risks, as well as influencing positive change through the investments we hold,” Maria Nazarova-Doyle, Scottish Widows’ head of pension investments, said in a statement. “Our exclusions focus on companies we believe pose the most severe investment risk due to the nature of their businesses, which can’t be addressed through engagement.”

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The company said the exclusions will be applied across its life, pension, and open-ended investment company funds, including its flagship workplace default investment options. It will also be applied to index trackers and its own active funds.

Nazarova-Doyle said the growth of what she termed “at-risk companies” that are targeted for exclusion will likely be “severely limited by future regulations and the changing views of customers and investors, leading to significant falls in their share prices.”

As part of the policy, Scottish Widows said it is working with its strategic investment partners to apply the exclusions to the external pooled funds it manages on behalf of a broad range of institutions.

“We recognize there’s more we can do as a company and that this is just one step in the journey,” Nazarova-Doyle said. “However, this underlines our commitment of becoming a market leader in responsible investment and to make a real difference.”

In August, Scottish Widows became the first investor in BlackRock’s newly launched Authorised Contractual Scheme Climate Transition World Equity Fund, allocating £2 billion of its pension portfolios to the fund, which it also helped design. The fund backs businesses that decrease carbon emissions, increase clean technology revenue, and display more efficient water and waste management. The fund also makes significant ESG exclusions.