Tag Archives: Ray Dalio

Managing Brand Alpha: The Next Frontier for Investment Firms

Performance remains a critical selection factor for investors; but increasingly in a post-Madoff world, it’s not what’s most important to them.

Although investment firms understand this, many choose to ignore the qualitative factors that have significant influence on investor decision-making, which include:

 

  • What You Stand For: INTELLECTUAL CAPITAL is what motivates investors to place their capital at risk. This does not involve how much you know. Investors need to understand what you believe in, and to appreciate what you’re attempting to achieve.

What does “intellectual capital” sound like?

Here’s a letter to investors from Phil Goldstein of Bulldog Investors, regarding one of his funds: “As these statistics suggest, we are risk averse. Thus, we tend to outperform in down or choppy markets. On the other hand, we expect to underperform the stock market when it booms…For the most part, we eschew any attempt to predict the markets. Instead, we focus on trying to find investments where we think we have an edge. By seeking out and exploiting inefficiencies in the marketplace, we hope to generate above average returns for our Fund with reduced risk. We also will use activism when necessary to try to unlock the value of our investments. This strategy has worked quite well for us in the past and we see no reason to alter it.”

  • Who You Are: PERSONAL INTEGRITY qualifies you for consideration by investors. Lacking confidence in your character and reputation, both as a firm and individuals, they will dismiss your performance and your ideas.

What does “personal integrity” sound like?

Here’s what Ray Dalio of Bridgewater Associates stated in an interview, “I started Bridgewater from scratch, and now it’s a uniquely successful company and I am on the Forbes 400 list. But these results were never my goals—they were just residual outcomes—so my getting them can’t be indications of my success. And, quite frankly, I never found them very rewarding. What I wanted was to have an interesting, diverse life filled with lots of learning—and especially meaningful work and meaningful relationships. I feel that I have gotten these in abundance and I am happy.”

  • What Others Think of You: CREDIBILITY must be validated by respected third parties, to provide investors with the confidence they require to consider you as their financial fiduciary.

What does “credibility” look like?

Media exposure in objective, respected publications is one of many ways to achieve third-party endorsements. Here’s the head, subhead and opening of a recent Barrons’ profile: A Top African Hedge Fund Is Buying Markets Others Are Deserting: Andrew Lapping, who runs the Allan Gray Africa Equity fund, has been moving into markets like Zimbabwe and Nigeria that others are deserting. “Investing successfully in Africa’s volatile and illiquid stock markets requires as much patience as courage. Andrew Lapping has acquired a bit of both as the South Africa–based portfolio manager of the Allan Gray Africa Equity fund…”

Investment firms with the talent and discipline required to generate consistent risk-adjusted returns are entitled to investor interest on that basis.

But firms that focus exclusively on their performance to attract and maintain assets — without addressing the selection factors that build understanding, trust and loyalty among investors and their advisors — demonstrate a reckless approach to enterprise brand risk management that not only compromises their financial acumen, but should provide current and prospective investors with some cause for concern.

How an investment firm manages its enterprise brand alpha should be part of the due diligence process for investors.

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5 Secrets to Ray Dalio’s Hedge Fund Success

Hedge Fund Craftsmanship

By most measures, Ray Dalio has achieved great success during his 65 years on earth. Unlike Donald Trump, Dalio didn’t inherit wealth. As a middle-class kid, he delivered newspapers, shoveled snow and was a caddy during the summer. The company Dalio established in his apartment in 1975, Bridgewater Associates, is currently the world’s largest and most successful hedge fund manager, with more than $87 billion in assets under management. Recently, Dalio was ranked by FORBES as the 30th wealthiest person in America, and the 69th wealthiest person on the planet, with a personal net worth of $15.2 billion.

So in a highly competitive landscape populated with nearly 10,000 hedge funds, how has Bridgewater been able to rise to the top of the investment management world and remain there? It’s unlikely that Dalio and his team know more about the markets, across every asset class, than all other hedge fund managers. It’s unlikely that Dalio simply has had a luckier hand in the bets he’s placed over the past 4 decades. And it’s also unlikely that Dalio has sold his soul to the devil.

In fact, Dalio makes no secret about Bridgewater’s success, and it’s articulated in great detail on his firm’s website. Dalio even provides a “Principles” playbook that you can download.

Briefly, here are 5 “secrets” to Dalio’s success:

He’s built a values-based organization – Dalio understands that Bridgewater’s ability to get 1,200 smart people to sing from the same songsheet requires clarity and consistency on what his company stands for, what it’s trying to achieve, and how it intends to get there. His belief system is based on the concept of “radical transparency,” which encourages employees to question everything, to think for themselves and to speak up.

He works ON his business, not AT his business – Dalio understands that intellectual capital, enterprise experience and operational systems & processes must be captured, documented and integrated into the day-to-day decision-making of a firm. Like Ray Kroc, Dalio has invested great thought and effort to create an organization with intrinsic value that does not rely on him, or on any individual, for its continued success. In Bridgewater, he has created the McDonald’s of investment management.

He has no patience for ego or emotion – Dalio understands how personal agendas and corporate politics can destroy any organization. He has been relentless in his efforts to remove ego barriers and emotional reactions in Bridgewater’s decision-making process. Institutional and personal transparency is the cornerstone of Bridgewater’s corporate culture. Some employees who’ve found it difficult to survive under such a high level of scrutiny either drop out or are invited to leave, providing the firm with a very effective natural selection process.

He’s focused on the importance of mistakes – Dalio understands that corporate arrogance is the most significant potential liability for successful companies. Because he believes anyone can be wrong, the Bridgewater culture views mistakes as opportunities to learn, rather than something to be avoided. FBI Director James Comey, who once served as Bridgewater’s general counsel, described the firm’s “obsession over doubt” as an asset that drives constant improvement and reduces the chances of bad decisions being made.

He’s not motivated by money – Dalio has been wealthy for a long time, but being wealthy was never his primary goal. In his own words, “I started Bridgewater from scratch, and now it’s a uniquely successful company and I am on the Forbes 400 list. But these results were never my goals—they were just residual outcomes—so my getting them can’t be indications of my success.  And, quite frankly, I never found them very rewarding. What I wanted was to have an interesting, diverse life filled with lots of learning—and especially meaningful work and meaningful relationships. I feel that I have gotten these in abundance and I am happy.”

The corporate tag line describing Bridgewater Associates is aptly titled “A Different Kind of Company.” And Dalio is a different kind of American businessman. Unlike Apple’s Steve Jobs, who managed by arrogance, fiat and intimidation, Dalio has created a meritocracy that’s based on honesty, clear thinking and humility.

Bridgewater doesn’t produce clever electronic gadgets or software apps designed to entertain us or make our lives easier. Dalio’s greatest achievement is unrelated to the wealth he’s created for himself or for his institutional investor clients. Dalio’s most valuable and enduring accomplishment is based on his role as the architect of an organizational management model that can radically improve the world of work, as well as the lives of people who seek personal meaning through their work.

Unfortunately, most companies – regardless of industry – don’t have the courage or the desire to adopt Dalio’s brutally honest management approach. That’s why Bridgewater is likely to be the most world’s successful hedge fund manager for a very long time.  True hedge fund craftsmanship.

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