A Hedge-Fund Founder’s Obsessive Storytelling

In the spring of 2010, a Web site called Dealbreaker obtained a notable PDF. Dealbreaker was a gossip-and-news blog in the mold of Gawker, focussed specifically on the cartoonish personalities and plotlines that emerged from the world of Wall Street and high finance. This PDF was of particular interest, as it concerned one of the more colorful, idiosyncratic, and egomaniacal figures which that province had yet produced: Ray Dalio, the founder of Bridgewater Associates, one of the largest hedge funds in the world. The document laid out what Dealbreaker called the “Tao of Dalio,” and what Dalio called his “Principles,” a novella-length manifesto that the blog claimed Bridgewater employees were encouraged to read, deploy in their daily lives, and quote from regularly at work. “If you didn’t know anything about the Bridgewater’s Tao of Dalio,” Dealbreaker observed, “you might find yourself asking ‘WTF is this shit?’ ”

This was the public début of “the hedge fund’s unofficial handbook.” One version outlined more than two hundred general rules that ranged from short axioms (“Don’t act before thinking”) to long-winded anecdotes about Darwinian competition, all compiled in a chaotically designed document that made liberal use of ellipses, highlights, underlines, bolded text, charts, and equations like “Reality + Dreams + Determination = A Successful Life.” An early chapter described a favorite allegory of Dalio’s, in which a pack of hyenas attacks and devours a wildebeest. Some might see the hyenas as “evil,” Dalio offered, because “the poor wildebeest suffers and dies.” But, in reality, the outcome is good for both parties. The hyenas are acting in self-interest, playing their part in the food chain. And, in a roundabout way, wildebeests would profit, too, as part of the greater ecosystem. “Killing and eating the wildebeest fosters evolution,” Dalio wrote, “(i.e., the natural process of improvement).”

The story was meant to capture the founder’s philosophy of leadership. In the interest of facilitating that “natural process of improvement,” Dalio imposed on Bridgewater staff a system of “radical transparency”: criticism was supposedly welcomed, encouraged even, so long as it was addressed directly at its subjects, rather than behind their backs. “I believe that radical truth and radical openness are essential for this rapid evolutionary process to occur,” Dalio wrote, “because it prevents the secretiveness that breeds hidden agendas and stands in the way of open debate.”

Thirteen years after the Principles became public, the New York Times reporter Rob Copeland has published “The Fund,” a book that blends Dalio’s biography and Bridgewater’s history into a closely observed investigation of how the Principles worked in practice. Copeland covered business at the Wall Street Journal for nearly a decade before moving to the Times, and has spent much of his career writing about hedge funds like Bridgewater. His history of the firm benefits from deep sourcing, drawing on new on-the-record interviews, internal documents, and multiple leaked e-mails, some of which are imported straight into the text.

But Dalio has apparently not received Copeland’s investigation with the kind of ego-annihilating humility his management philosophy recommends. (“At Bridgewater,” an early version of the Principles read, “people have to value getting at truth so badly that they are willing to humiliate themselves to get it.”) Copeland alleges that, after he notified Bridgewater of “The Fund,” several former staff members received additional payments so that they would not speak to the press. (Bridgewater called this “unequivocally untrue”; a representative for Dalio said it was “categorically false.”) Dalio did not coöperate with reporting for the book, and he and Bridgewater also hired, per Copeland, attorneys from “not one or two but three white-shoe law firms,” which have threatened Copeland’s publisher, St. Martin’s Press, with a lawsuit for billions in damages. Both Dalio and Bridgewater maintain that the book provides an inaccurate portrayal of the company, including the way that Dalio’s Principles were used.

Copeland seems to relish Dalio’s reaction. As he writes in an author’s note, “Ray Dalio does not want you to read this book.” But the portrait he paints of Dalio does not depart dramatically from what the hedge-funder has readily revealed about himself. In addition to meticulously refining his axioms, Dalio has spent decades publicly opining on his fund, his philosophy, and important existential questions (per one piece he wrote, “What is a Jeweler?”) in just about any outlet that will have him. After reading articles that he disliked, Dalio would frequently call Copeland to “ream” him out. (Dalio, through a representative, said their conversations were respectful.) But these alleged tirades also made the executive “the ultimate source for a journalist,” Copeland writes—in the calls, Dalio would inevitably reveal some new fact, tipping him off to another lead.

When Dalio founded Bridgewater, in 1975, he did not have much by way of assets. The only child of a jazz musician, he had grown up in what Copeland describes as a working-class Long Island suburb; his primary encounters with wealth were at a golf course where he caddied. A middling student but a good talker, Dalio had parlayed his C average into a probationary admission at a nearby college, taken up meditation, and improved his G.P.A. enough to help secure a seat at Harvard Business School. He had flopped on the postgrad job market, briefly overseeing a cratering commodities firm before getting fired from a brokerage for, among other things, allegedly punching his boss and bringing a stripper to a work event. But Dalio had some old-money connections from his caddying days, and happened to be dating one potential backer. His soon-to-be wife, Barbara, was a Vanderbilt.

Dalio started Bridgewater as a kind of consultancy for commodities, an asset class that had long been seen as unsexy. Dalio’s proximity to old wealth, Copeland writes, taught him that large institutional investors weren’t interested in maximizing growth so much as minimizing risk. His initial business was directed at managing that risk; if a company relied on a volatile commodity, he would help them stabilize costs by investing in assets likely to balance out losses. Over time, the firm evolved into managing investment portfolios that simultaneously took long positions (bets that a given asset will appreciate) and short positions (bets that a given asset will depreciate). “This was, in all but name, a hedge fund,” Copeland writes.

Hedge funds had fallen out of fashion after a couple of market crashes in the early nineteen-seventies, but they were returning to the fore by the next decade. Copeland argues that Dalio had both good timing and an advantage. In addition to his investing, Dalio had branded himself as a kind of macroeconomic thinker, publishing a newsletter on global trends and historical research for clients and industry peers. As a forecaster, Dalio frequently missed the mark; he tended to see doom and recessions at every turn. In one notable instance, he warned a congressional committee that the United States was heading into its next depression, giving a performance one congressman called “more grim than the ghost of Hamlet’s father.” The market was on the rebound mere weeks later.

Even when Dalio got it wrong, Bridgewater performed well, partly because the company’s investment strategies were more systematic than his predictions. As Copeland tells it, Dalio had developed a basic set of if-then guidelines for trading, built on extensive research of global currencies, trends, and historical data. In the early days of hedge funds, so much trading was based on whim, instinct, and vaguely divinatory practices like tape reading, so called after the ticker tape used to transmit trades via telegraph. Dalio’s systematized, research-based approach constituted, per Copeland, an “unquestionable edge.”

Like many denizens of high finance, Dalio developed a fondness for jargon, both of his own invention and of the general Wall Street dialect. Among the latter: “alpha” and “beta.” Beta, as Dalio used it, was the investment return that “any investor would expect to get simply from exposure to the markets.” Alpha, by contrast, was the “extra juice”—whatever the savvy investor could add on top of beta earnings. Dalio became focussed on generating “genuine alpha.” In the early nineties, he developed a stand-alone fund within Bridgewater called Pure Alpha, an investment vehicle that aimed to be effectively all juice, no breaks.

Though Dalio continued to mistakenly predict economic doom on an almost annual basis, Bridgewater grew rapidly in its inaugural years. In the nineties, Copeland writes, Pure Alpha’s assets were roughly doubling every fiscal year. And Dalio’s perennial Nostradamus act did not always play out poorly. When the dot-com bubble burst and sent the economy cratering, Dalio and Bridgewater emerged unscathed. By 2003, Dalio ranked among the world’s wealthiest hedge-fund managers, débuting on the Institutional Investor’s Rich List with an estimated earnings of a hundred and ten million dollars that year alone. But the book is less about how Dalio made his way to the top than the obsession with his legacy that consumed him once he got there. In the more than three-hundred-page book, Dalio first mulls his retirement on page fifty-nine.

In late 2005, when Dalio first announced his plans to retire, he was fifty-six—not yet retirement age, but old enough to think about how his business would run without him. Hedge funds are name-brand goods; when the name retires, the investments often follow. So it was then, in Copeland’s account, that Dalio first started to codify his approach, not just to investing, but to leadership in general. He began dictating memos on Bridgewater’s philosophy and “core values,” devising a collection of general precepts that, per Copeland, “boiled down to prizing the ability to argue with one another without fear of offense.”

In an early version of the Principles, there were two hundred and seventy-seven of them. Dalio continued to adjust and add to the list over the years, even after he published a heavily revised version in his 2017 memoir, “Principles: Life and Work.” They were riddled with terminology of Dalio’s design. Finding your “box” meant figuring out your role within the company, while losing your box was what it sounds like; at that point, staff could either find a new one (“getting through to the other side”) or get “sorted” (fired). There were “chirpers,” people who only rehashed stale ideas instead of inventing their own; a person was a “slimy weasel,” if she talked behind others’ backs; and then there were “shapers”—visionary leaders whose exact attributes were somewhat vague, but who tended to be public figures and whom, per Copeland, Dalio seemed to anoint primarily “after they had spent a long time speaking with him.”