Bridgewater Alpha Fulfills Promise, Somewhat

Chidem Kurdas

Bridgewater Associates’ Pure Alpha, probably the world’s largest single hedge fund, has lived up to its name so far in 2014. That is, it made a higher-than-market return.

Year-to-date as of the end of last month the Pure Alpha strategy gained over 3%. The exact number varies with the currency and type of share, since a number of products feed into the master investment program.

The S&P 500 edged up a mere 1.93% in the same period. That’s a nice alpha margin of more than one percentage point for four months.

But in the past 24 months, Pure Alpha made around 6% annualized, far less than U.S. stocks.

Depending on how long a time interval you take, Pure Alpha looks like an alpha sprinter or a beta laggard.

It has to be said that a lot of professional investors favor this program. Many reject the notion of assessing the strategy for 12 or 24 months, let alone shorter intervals. They insist that the right time frame is five to seven years. Then you see the 13% or higher return that made Pure Alpha’s – and Bridgewater’s – reputation.

But what if economic and market conditions have changed in ways that make the strategy less successful than it has been in the past?

That’s unlikely, says a fan. The strategy is flexible and adaptable, it can go to any market and trade any instrument. What’s more, even if it never gets up to the high double digits it once did, it’s still doing better than most investments.

With $80 billion in assets and pursuing a macro strategy managed by one firm, Pure Alpha is truly a giant among hedge funds. Unavoidably, the thought occurs that it’s so big, it can’t trade in certain markets without causing adverse price changes.

These people have experience dealing with that problem, says the fan. It’s under control.

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