Ray Dalio TED Talk

[LC]

 

Radical transparency (and idea meritocracy) does not have to equal stress. It works well, but... only within groups that really trust each other and where everyone has internal buyin for it.

I agree with this, but with a caveat: In my experience, transparency works best when it's actually transparent in all factors, not just work.

 

Let's say your coworker is missing some deadlines, you notice it for a bit and in the spirit of transparency, you mention it. In the same spirit, he says that he's going thru a breakup, has a new baby, or what have you, and therefore his mind has been elsewhere.

 

A fully transparent relationship is when you already know your coworker is on the rocks with his girlfriend, or his wife is expecting, or whatnot, because you share these things. And so you may preemptively re-allocate resources to avoid the situation entirely.

 

[Spekulatius]

Call me skeptical that the radically transparancy really applies to everyone equally and that leads to people giving rational and unemotional ratings to everyone.I think they system is just meant to be gamed with kickbacks or revenge ratings.

I am not debating that it works for Bridgewater, but I think it would not work in most places in the wild.  Bridgewaters  employes are handselected and highly paid and the environment is fairly academic. I am fairly sure that the average company cannot operate in the same way.

[Jurgis]

 

Radical transparency (and idea meritocracy) does not have to equal stress. It works well, but... only within groups that really trust each other and where everyone has internal buyin for it.

I agree with this, but with a caveat: In my experience, transparency works best when it's actually transparent in all factors, not just work.

 

Let's say your coworker is missing some deadlines, you notice it for a bit and in the spirit of transparency, you mention it. In the same spirit, he says that he's going thru a breakup, has a new baby, or what have you, and therefore his mind has been elsewhere.

 

A fully transparent relationship is when you already know your coworker is on the rocks with his girlfriend, or his wife is expecting, or whatnot, because you share these things. And so you may preemptively re-allocate resources to avoid the situation entirely.

 

Right. That's why I talked about trust and internal buyin.  8)

[TwoCitiesCapital]

As someone who spent roughly 3.5 years there, I can say the system works and it was incredibly refreshing versus my other corporate experiences.

 

It's a true meritocracy and you learn/grow very quickly because there is very little politics to the whole game. You do something well - you hear about it. You do something poorly - you hear about it. And you have the opportunity to provide the same feedback to the entirety of your team (including superiors).

 

There's no backhanded compliments, interpreting cryptic and ambiguous feedback, wondering what someone really meant, if you're really performing up to expectations or not, etc. etc. etc. You know - because you talk about it regularly. I'd say the feedback mechanims (both upwards and downwards) at Bridgewater is on equal par in importance as the actual job role.

 

Some people love it. Some people hate it. You find that all of the employees have been there like 7+ years or less than 2. Very few in between because they wash out or stay for life.

[kevin4u2]

 

Can I ask what industry you work?

 

Manufacturing

[stahleyp]

Did you guys see/read the article in Grant's about Bridgewater? I haven't but it has some folks concerned.

[sarganaga]

Did you guys see/read the article in Grant's about Bridgewater? I haven't but it has some folks concerned.

 

Here's an excerpt of Grant's article about Bridgewater.http://www.zerohedge.com/news/2017-10-11/bridgewater-fraud-here-are-troubling-questions-posed-jim-grant

[TwoCitiesCapital]

Did you guys see/read the article in Grant's about Bridgewater? I haven't but it has some folks concerned.

 

Here's an excerpt of Grant's article about Bridgewater.http://www.zerohedge.com/news/2017-10-11/bridgewater-fraud-here-are-troubling-questions-posed-jim-grant

 

I wonder about the details of the loans to KPMG - that's interesting and potentially troubling.

 

As far the 91 employess at BNY, eh...it's slightly mischaracterized here as being shady. Bridgewater decided to outsource all of its back-office functionality several years back. Instead of firing all of the employees and simply moving to a back office provider (like BNY or State Street), they signed a deal with BNY where BNY would acquire that department and collect a fee for providing the back office services using those employees (and more as necessary). Since then, a number of those workers have left due to natural atrophy over the 6-year period since the transition began which is why the number here is less than the number initially transferred.

 

I would stress that none of these workers worked for the custodial side of BNY at the time. Nor did any of the work for the administrator side at the time. This may have changed since my time there as workers naturally move within the firm, but they were all in a separate unit that existed only to provide Bridgewater with back office support.

 

This is no different than if Bridgewater had gone to BNY (or any other custodial bank that offers the service, like State Street) directly for the outsourcing except that it retained talented Bridgewater employees (WAY better than typical middle/back office staff - trust me!) for the company's benefit as well as taking care of the 100+ back office workers, many of whom had been at the firm for years.

 

I'm less versed on the regulatory stuff - but as someone who has previously been involved with regulatory reporting, I can say there is a ton of ambiguity surrounding how to account for things like derivatives (net or gross exposures) as well as things as simple as long/short positions. Managers make a best efforts report to the SEC and then answer any clarifying questions the SEC has so it's not entirely surprising to me they can't tie out the AUM from regulatory reports.

 

I'm less versed on ownership structures, so the % ownership issues it brings are up in the air - but I'm not convinced that the person who did the digging knew what they were talking about since they missed so badly on the characterization of the employee transfer and the regulatory reporting :/

 

 

[stahleyp]

Thanks for the additional insight there, guys!

[oddballstocks]

but I'm not convinced that the person who did the digging knew what they were talking about since they missed so badly on the characterization of the employee transfer and the regulatory reporting :/

 

They describe the BNY thing the same way you do, so they understood the transaction: "In December 2011, Bridgewater signed a deal with Alexander Hamilton's old bank: Bridgewater fired 91 back-office employees; BoNY hired these 91 practitioners of radical transparency to work Bridgewater's books in an outsourcing contract."

 

I've read the piece, I've spent a few days emailing/chatting with friends about this as well as pondering it.  My overall conclusion is this.  That Grant has a reputation to defend and he must be sure of whatever he knows to publish this piece.  My best guess is there are a few sources inside the company who said "don't quote or mention us, but here's how it works" and they went looking for public scraps to support the story.  I've experienced this myself, it isn't uncommon.

 

We don't know what the reality is with Bridgewater.  The radical transparency stuff seems weird.  Seems even weirder that he can tape employees, but employees aren't allowed to see any management meetings, it's not a two way street.

 

The essence of the article calls into question a number of weird filing issues, the auditor thing and others.  But it also points out that for a 1,500 person firm that Dalio and just a few others are really the only ones who invest.  And recently Dalio isn't investing anymore, but promoting his book. 

 

If anything the article reads like a PSA for subscribers who might be fund clients to consider pulling cash and redeploying elsewhere.  There is no "This is Madoff 2.0" or "it's a fraud" just a serious of questions worth considering like "what does it own?" and "why hasn't anyone seen their trades?"

 

I'd be curious to know if anyone has seen the portfolio under an NDA or been able to get a copy under NDA.  TwoCities have you seen the portfolio, or any portfolio? No need to know holdings, just a simple yes or know. 

[TBW]

I agree with what you guys are saying.  What I think is being missed with the Grant's piece is they are also questioning the value BW provides and the strategy they use.

 

From my understanding of risk-parity, the strategy that BW uses, it is just a glorified levered bond portfolio.  The other stuff Grant uncovered, the lack of PB, only a few people the know the trades etc.  Make sense.  You don't need many people to just buy treasuries.

 

So Grant's, to me, is saying there are a couple of ways this goes wrong; yields rise and they lose tonnes of money, investors realize that BW is mostly marketing and the strategy is quite basic, or there is some weirdness that could point to bigger issues.

 

Combine that combination with the historical precedence of largest firms failing when markets turn.  Strategies that work in bull markets (long rates) fail in bear markets etc (risk-parity or vol selling would be my primary guesses of strategies that fail next mkt turn).  So I see lots of ways Grants can be right without this being an actual fraud.

[TwoCitiesCapital]

but I'm not convinced that the person who did the digging knew what they were talking about since they missed so badly on the characterization of the employee transfer and the regulatory reporting :/

 

They describe the BNY thing the same way you do, so they understood the transaction: "In December 2011, Bridgewater signed a deal with Alexander Hamilton's old bank: Bridgewater fired 91 back-office employees; BoNY hired these 91 practitioners of radical transparency to work Bridgewater's books in an outsourcing contract."

 

I've read the piece, I've spent a few days emailing/chatting with friends about this as well as pondering it.  My overall conclusion is this.  That Grant has a reputation to defend and he must be sure of whatever he knows to publish this piece.  My best guess is there are a few sources inside the company who said "don't quote or mention us, but here's how it works" and they went looking for public scraps to support the story.  I've experienced this myself, it isn't uncommon.

 

We don't know what the reality is with Bridgewater.  The radical transparency stuff seems weird.  Seems even weirder that he can tape employees, but employees aren't allowed to see any management meetings, it's not a two way street.

 

The essence of the article calls into question a number of weird filing issues, the auditor thing and others.  But it also points out that for a 1,500 person firm that Dalio and just a few others are really the only ones who invest.  And recently Dalio isn't investing anymore, but promoting his book. 

 

If anything the article reads like a PSA for subscribers who might be fund clients to consider pulling cash and redeploying elsewhere.  There is no "This is Madoff 2.0" or "it's a fraud" just a serious of questions worth considering like "what does it own?" and "why hasn't anyone seen their trades?"

 

I'd be curious to know if anyone has seen the portfolio under an NDA or been able to get a copy under NDA.  TwoCities have you seen the portfolio, or any portfolio? No need to know holdings, just a simple yes or know.

 

But they insinuate that it's a shady deal to have done with their custodian - but the fact is they don't work for the custodial unit, didn't have anything to do with custody activities, and simply continued to the same settlement/booking/accounting functions they did before the sale. That transaction literally has nothing to do with anything in the article as proof of fraud other than bringing up something that wouldn't be well understood by those outside of the industry to plant a seed of doubt. It's no different than if Bwater had approached BNY and simply outsourced the back office functionality like other firms have. No one insinuates PIMCO is a fraud simply because State Street acts as it's fund custodian AND its back-office...

 

As far as the recordings, it used to go both ways. It changed after a hit piece had come out a year or two back where some disgruntled employees had shared some details of those meetings without the context being established (IIRC, it was about the rift with Greg Jensen). Recordings were accessible to all while I was there. Even when the recordings went both ways, people would drag the company through the dirt for the practice, so I don't really buy that most people's criticism is a product of the changed policy.

 

Realistically, why is it such a big deal to record all meetings? Most banks I worked with record all phone calls and nobody cares. The tapes are a resource that can be referenced for anything - A record of what was said in the meeting while you were out sick, who asked that question you were supposed to follow up on, what was said in your performance review last quarter, the terms of any verbal agreements that had been made, etc. It also acts as a catalogue for any of the employees who cry wrongful termination when Bridgewater can pull tapes from their last 3 check-ins where they were told they were underperforming with the evidence of how that was being determined. In a city where asset managers have difficulty getting rid of bad employees, and where recruiting is so expensive, this actually makes A LOT of sense. Bridgewater does some wacky things - the tapes aren't really one of them, but it is the one everyone gets caught up on.

 

It's not odd to me that only a few funds have Prime Brokers - when 90% of your trade volume is in derivative contracts, futures/forwards, and currenices - what do you need a prime broker for? They have an equity fund or two - those are the funds that have a prime broker. Bridgewater isn't known for being an equity stock picker. They're a macro house. That is likely why those funds remain incredibly small and are largely employee money. Again, why is this strange? I would've thought that even modest research would point to Bridgewater relying heavily on futures/forwards/currencies and derivatives. How else do they put $160B to work?

 

Ray and a handful of people are on the research team. The research team are the ones who look at the data and determine the broad exposures they want (yes to Chinese banks, no to Italian ones. etc.). From there, it's up to another team to determine the best way to adopt those exposures for each portfolio being managed - do we buy Chinese bank equities and short Italian equities? Do we buy Chinese bank capital and purchase Italian Bank CDS? Each decision is made based on the economic exposure, how closely it has tracked the thesis historically, if that exposure fits the fund/portfolio's guidelines, etc. From there, it goes to the traders who determine the lowest cost execution (lowest $ cost, lowest information leakage, etc.). To characterize this as only a few people making the investment decidions overlooks nearly the entire front office of the company who is involved with the process. Do we really believe that 1000+ employees just sit around all day doing nothing while Ray and 10 others run the whole place?

 

Lastly, I was in the Ops department during my time there. Ive seen the transactions, holdings, and settlements of many funds and product types during my tenor there. They were real enough to all of our counterparties...

 

Like I said, the only thing I see in that article that is in anyway alarming is the load to the auditor. I don't know anything about it and it certainly seems strange - but given how mischaracterized everything else was, I don't really trust that they did their research there either.

 

 

[Liberty]

https://www.bloomberg.com/view/articles/2017-10-13/the-case-against-bridgewater-isn-t-proven

 

Matt Levine on Bridgewater.

[TwoCitiesCapital]

https://www.bloomberg.com/view/articles/2017-10-13/the-case-against-bridgewater-isn-t-proven

 

Matt Levine on Bridgewater.

 

Much better, and more concise, defense saying basically the same things I said above. Everyone should just read this and ignore my posts.  ;D

 

 

[TwoCitiesCapital]

https://www.bloomberg.com/news/articles/2017-10-13/bridgewater-is-said-to-refute-grant-s-assertions-in-client-call

 

Jim Grant apologizes and admits the report was sloppy and incorrect.

[Pauly]

https://www.bloomberg.com/news/articles/2017-10-13/bridgewater-is-said-to-refute-grant-s-assertions-in-client-call

 

Jim Grant apologizes and admits the report was sloppy and incorrect.

 

Did Jim wake up with a horse's head in his bed?

I kid. Interesting bit of drama to follow. And thanks for your input, TwoCities, it's always nice to hear first hand accounts.

[Spekulatius]

As someone who spent roughly 3.5 years there, I can say the system works and it was incredibly refreshing versus my other corporate experiences.

 

It's a true meritocracy and you learn/grow very quickly because there is very little politics to the whole game. You do something well - you hear about it. You do something poorly - you hear about it. And you have the opportunity to provide the same feedback to the entirety of your team (including superiors).

 

There's no backhanded compliments, interpreting cryptic and ambiguous feedback, wondering what someone really meant, if you're really performing up to expectations or not, etc. etc. etc. You know - because you talk about it regularly. I'd say the feedback mechanims (both upwards and downwards) at Bridgewater is on equal par in importance as the actual job role.

 

Some people love it. Some people hate it. You find that all of the employees have been there like 7+ years or less than 2. Very few in between because they wash out or stay for life.

 

This begs the question - if you like Bridgewaters unique management style so much, why did you leave after just 3.5 years? In my book that is not a long time to spent with an employer your really like working for.

[sleepydragon]

As someone who spent roughly 3.5 years there, I can say the system works and it was incredibly refreshing versus my other corporate experiences.

 

It's a true meritocracy and you learn/grow very quickly because there is very little politics to the whole game. You do something well - you hear about it. You do something poorly - you hear about it. And you have the opportunity to provide the same feedback to the entirety of your team (including superiors).

 

There's no backhanded compliments, interpreting cryptic and ambiguous feedback, wondering what someone really meant, if you're really performing up to expectations or not, etc. etc. etc. You know - because you talk about it regularly. I'd say the feedback mechanims (both upwards and downwards) at Bridgewater is on equal par in importance as the actual job role.

 

Some people love it. Some people hate it. You find that all of the employees have been there like 7+ years or less than 2. Very few in between because they wash out or stay for life.

 

This begs the question - if you like Bridgewaters unique management style so much, why did you leave after just 3.5 years? In my book that is not a long time to spent with an employer your really like working for.

 

One possibility: there are people who think they are good fit to Bridgewater's culture but not the other way around.  ;)

[TwoCitiesCapital]

As someone who spent roughly 3.5 years there, I can say the system works and it was incredibly refreshing versus my other corporate experiences.

 

It's a true meritocracy and you learn/grow very quickly because there is very little politics to the whole game. You do something well - you hear about it. You do something poorly - you hear about it. And you have the opportunity to provide the same feedback to the entirety of your team (including superiors).

 

There's no backhanded compliments, interpreting cryptic and ambiguous feedback, wondering what someone really meant, if you're really performing up to expectations or not, etc. etc. etc. You know - because you talk about it regularly. I'd say the feedback mechanims (both upwards and downwards) at Bridgewater is on equal par in importance as the actual job role.

 

Some people love it. Some people hate it. You find that all of the employees have been there like 7+ years or less than 2. Very few in between because they wash out or stay for life.

 

This begs the question - if you like Bridgewaters unique management style so much, why did you leave after just 3.5 years? In my book that is not a long time to spent with an employer your really like working for.

 

One possibility: there are people who think they are good fit to Bridgewater's culture but not the other way around.  ;)

 

The other possibility - I didn't move to NYC with an operations position as my goal and the 3 hours of commuting daily were wearing on me after 3.5 years.

 

I interviewed for 3 other positions internally. Received an offer for 1, but it was the one I wanted least of the 3. Decided that it made better sense to leave for a front-office position in NYC, with a better quality of life (no 3 hours a day of commuting), than it did to stay in a position I didn't care for at a company I loved.

 

That being said, I've been at this new company for nearly 3-years and can't confidently say it was the right decision.