Bridgewater Benefits from Investor Caution

Chidem Kurdas

Wary investors may be pulling money out of the industry but favor certain big firms, among them institutional money manager Bridgewater Associates, which is one of the largest hedge fund shops.

Institutions in particular are on their guard after experiencing the 2008 crisis, frozen redemptions, Bernie Madoff and assorted frauds. They’re now more likely to put off investing when there is any bad news on the economic and financial front. Thus the European debt crisis appears to have scared away investors.

Capital flows to hedge funds have dropped and even reversed in recent months. According to TrimTabs and BarclayHedge, $3.5 billion in assets left the industry in April, the third outflow in five months.

In the uncertain environment, investors seek large managers that have demonstrated their ability to survive under adverse conditions. Certain fund of funds increased their allocation to Bridgewater’s Pure Alpha I fund in the past 12 months. Other investors say they’re comfortable with the firm because it pursues a coherent overall approach.

Bridgewater has $75 billion total assets, of which perhaps half is in hedge fund strategies. Its assets fell for several years after 2005 because founder Ray Dalio decided to shift to an approach known as portable alpha, where market returns are achieved with much less capital by using derivatives and most of the money is invested in hedge fund strategies.

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