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Bridgewater Associates LP is one of the world’s largest hedge funds and was founded by the legendary investor Ray Dalio. The fund manages assets worth $154 billion for a variety of investors, including pension funds, university endowments, charitable foundations, sovereign wealth funds and central banks across the globe.

Storied Past

Bridgewater’s history is unique even by the standards of the elite hedge fund industry. Not only is Bridgewater one of world’s largest funds; it is also one of the world’s most profitable funds. The Bridgewater Pure Alpha fund founded in 1975 has made $45 billion in absolute returns to date, ranking among the top hedge funds anywhere in the world. Even as other hedge funds sank in the aftermath of the 2008 financial crisis, Bridgewater stood tall, turning in a profit amid all the distress.

The All-Weather Strategy

Such stellar returns were possible due to the deft handling of the fund by Dalio and fellow investment managers Bob Prince, Greg Jensen and Dan Bernstein. Formulated nearly two decades ago, Bridgewater’s all-weather strategy is still paying off handsomely, helping the money management firm sail financial storms. Perfecting the all-weather strategy also helped the fund pioneer a whole range of new strategies such as currency overlay and risk parity. Under these strategies, any asset class is fair game for Bridgewater, and the firm magnifies the return on assets with the use of leverage.

Principles at the Core

The Connecticut-based fund navigates global financial complexities by espousing radical openness among its 1,500 employees and by sticking to a set of core rules developed by Dalio. Bridgewater hands out copies of Principles, a nearly 100-page rule book written by Dalio. The book is required reading for newcomers trying to integrate themselves to the firm’s culture. The book's 210 overarching principles not only serve as a guide to investment practice at the outfit but also govern other activities, such as how managers and employees interact with each other at the company.

Such stringent rules have attracted much criticism about the company. Nonetheless, Bridgewater’s expertise has its fans as well. Bond fund guru and Pacific Investment Management Company LLC founder Bill Gross, who is currently a lead portfolio manager at Janus Capital Group Inc. (NYSE: JNS), says that even the U.S. Federal Reserve should take note of Dalio’s models while making decisions about the economy.

Succession Planning Stumble

Even as Bridgewater enjoyed phenomenal success over the past four decades, the firm seems to have stumbled in one key area that typically haunts hedge funds: succession planning. It is a well-known fact that hedge funds find it challenging to thrive without the guiding hand of their idiosyncratic founders. It is also one reason why founders find it difficult to relinquish control over the hedge funds they had created.

A similar problem seems to have struck Bridgewater as well. In February 2016, financial press was abuzz with news of succession struggle between Dalio and Jensen, currently co-CEO and co-chief investment officer. While the two top executives reported that their differences have been resolved, it came as a surprise when Dalio hired Jon Rubinstein, a former executive at Apple Inc. (NASDAQ: AAPL), for one of the company's top positions. Even as hiring a technology hand to a hedge fund like Bridgewater raised eyebrows, the more surprising development in the company's announcement was that Jensen would forfeit his administrative duties and focus on the investing role.

Bridgewater takes pride in calling itself “a different kind of company” in the hedge fund industry, but the latest succession issue at the firm could certainly pose a challenge to that claim.

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