Ray Dalio has cre­ated a machine at hedge fund Bridge­wa­ter – not only have assets sur­passed $120B, the fund con­tin­ues to churn out some fan­tas­tic results for investors.  Through end of August last year, the fund was up 25% YTD (and that was after an awful August for mar­kets, and before the stam­pede upward of Octo­ber); this after a 44% gain in 2010.  Longer term, this quirky group, has returned a fan­tas­tic 15% annu­al­ized since 1991.

The WSJ high­lights some updated thoughts for the near term (gloomy) and decade out (not much bet­ter).  Essen­tially it paints the devel­oped world as “Japan-ized”.  Some excerpts:

• As the new year rings in, the hedge fund firm has no plans to change that gloomy view.  Robert Prince, co-chief invest­ment offi­cer at Bridge­wa­ter, and his man­agers at the world’s biggest hedge fund firm are prepar­ing for at least a decade of slow growth and high unem­ploy­ment for the big devel­oped economies. Mr. Prince describes those economies—the U.S. and Europe, in particular—as “zom­bies” and says they will remain that way until they work through their moun­tains of debt.
• “What you have is a pic­ture of bro­ken eco­nomic sys­tems that are oper­at­ing on life sup­port,” Mr. Prince says. “We’re in a sec­u­lar delever­ag­ing that will prob­a­bly take 15 to 20 years to work through and we’re just four years in.”
• In Europe, “the debt cri­sis is [a] long ways from over,” he says. The eco­nomic and finan­cial morass will mean inter­est rates in the U.S. and Europe will essen­tially be locked at zero for years.
• In this bleak envi­ron­ment, Mr. Prince says stocks remain vul­ner­a­ble to “air pock­ets” from shocks, such as bad news out of Europe. But for longer-term investors look­ing out over the next decade, he says, equi­ties may be a good buy. There is even money to be made in U.S. Trea­surys, despite inter­est rates near record lows, and gold is likely to resume its climb as cen­tral banks print money to bol­ster their economies. Mr. Prince says.
• Recent better-than-expected news on the U.S. econ­omy is unlikely to be the start of a healthy expan­sion, he says. The uptick in eco­nomic growth has been fueled by a decline in the sav­ings rate, which, with­out mate­r­ial income and employ­ment gains, is unlikely to be sus­tain­able as long-term credit growth also remains weak, he says.
• Bridgewater’s flag­ship Pure Alpha Strat­egy fund is con­sid­ered one of the top funds in the world. As of the end of Novem­ber, it was up 25% since the start of the year, accord­ing to peo­ple famil­iar with the sit­u­a­tion. The aver­age macro fund had lost 3.7%, accord­ing to Hedge Fund Research.
• Founded in 1976 by Ray Dalio, Bridge­wa­ter man­ages $125 bil­lion and has 1,400 employ­ees. Mr. Prince, 53 years old, joined in 1986.  Pure Alpha has been up each year since 2000, and has recorded just three neg­a­tive cal­en­dar years since 1991. In 2008, the fund returned 9.4% after fees, and after a 2% gain in 2009—its small­est of the decade—Bridgewater posted a 44.8% return in 2010.

Dis­clo­sure Notice

Any secu­ri­ties men­tioned on this page are not held by the author in his per­sonal port­fo­lio. Secu­ri­ties men­tioned may or may not be held by the author in the mutual fund he man­ages, the Pal­adin Long Short Fund (PALFX). For a list of the afore­men­tioned fund's hold­ings at the end of the prior quar­ter, visit the Pal­adin Funds web­site at http://www.paladinfunds.com/holdings/blog

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