The Fund

I first became aware of Ray Dalio when either he or his publisher plastered advertisements for The Principles all over the San Francisco 4th and King Caltrain station. If I recall correctly, there were also constant radio commercials; it was a whole thing in 2017. My brain is very good at tuning out advertisements, so my only thought at the time was "some business guy wrote a self-help book." I think I vaguely assumed he was a CEO of some traditional business, since that's usually who writes heavily marketed books like this. I did not connect him with hedge funds or Bridgewater, which I have a bad habit of confusing with Blackwater.

The Principles turns out to be more of a laundered cult manual than a self-help book. And therein lies a story.

Rob Copeland is currently with The New York Times, but for many years he was the hedge fund reporter for The Wall Street Journal. He covered, among other things, Bridgewater Associates, the enormous hedge fund founded by Ray Dalio. The Fund is a biography of Ray Dalio and a history of Bridgewater from its founding as a vehicle for Dalio's advising business until 2022 when Dalio, after multiple false starts and title shuffles, finally retired from running the company. (Maybe. Based on the history recounted here, it wouldn't surprise me if he was back at the helm by the time you read this.)

It is one of the wildest, creepiest, and most abusive business histories that I have ever read.

It's probably worth mentioning, as Copeland does explicitly, that Ray Dalio and Bridgewater hate this book and claim it's a pack of lies. Copeland includes some of their denials (and many non-denials that sound as good as confirmations to me) in footnotes that I found increasingly amusing.

A lawyer for Dalio said he "treated all employees equally, giving people at all levels the same respect and extending them the same perks."

Uh-huh.

Anyway, I personally know nothing about Bridgewater other than what I learned here and the occasional mention in Matt Levine's newsletter (which is where I got the recommendation for this book). I have no independent information whether anything Copeland describes here is true, but Copeland provides the typical extensive list of notes and sourcing one expects in a book like this, and Levine's comments indicated it's generally consistent with Bridgewater's industry reputation. I think this book is true, but since the clear implication is that the world's largest hedge fund was primarily a deranged cult whose employees mostly spied on and rated each other rather than doing any real investment work, I also have questions, not all of which Copeland answers to my satisfaction. But more on that later.

The center of this book are the Principles. These were an ever-changing list of rules and maxims for how people should conduct themselves within Bridgewater. Per Copeland, although Dalio later published a book by that name, the version of the Principles that made it into the book was sanitized and significantly edited down from the version used inside the company. Dalio was constantly adding new ones and sometimes changing them, but the common theme was radical, confrontational "honesty": never being silent about problems, confronting people directly about anything that they did wrong, and telling people all of their faults so that they could "know themselves better."

If this sounds like textbook abusive behavior, you have the right idea. This part Dalio admits to openly, describing Bridgewater as a firm that isn't for everyone but that achieves great results because of this culture. But the uncomfortably confrontational vibes are only the tip of the iceberg of dysfunction. Here are just a few of the ways this played out according to Copeland:

• Dalio decided that everyone's opinions should be weighted by the accuracy of their previous decisions, to create a "meritocracy," and therefore hired people to build a social credit system in which people could use an app to constantly rate all of their co-workers. This almost immediately devolved into out-group bullying worthy of a high school, with employees hurriedly down-rating and ostracizing any co-worker that Dalio down-rated.

• When an early version of the system uncovered two employees at Bridgewater with more credibility than Dalio, Dalio had the system rigged to ensure that he always had the highest ratings and was not affected by other people's ratings.

• Dalio became so obsessed with the principle of confronting problems that he created a centralized log of problems at Bridgewater and required employees find and report a quota of ten or twenty new issues every week or have their bonus docked. He would then regularly pick some issue out of the issue log, no matter how petty, and treat it like a referendum on the worth of the person responsible for the issue.

• Dalio's favorite way of dealing with a problem was to put someone on trial. This involved extensive investigations followed by a meeting where Dalio would berate the person and harshly catalog their flaws, often reducing them to tears or panic attacks, while smugly insisting that having an emotional reaction to criticism was a personality flaw. These meetings were then filmed and added to a library available to all Bridgewater employees, often edited to remove Dalio's personal abuse and to make the emotional reaction of the target look disproportionate. The ones Dalio liked the best were shown to all new employees as part of their training in the Principles.

• One of the best ways to gain institutional power in Bridgewater was to become sycophantically obsessed with the Principles and to be an eager participant in Dalio's trials. The highest levels of Bridgewater featured constant jockeying for power, often by trying to catch rivals in violations of the Principles so that they would be put on trial.

In one of the common and all-too-disturbing connections between Wall Street finance and the United States' dysfunctional government, James Comey (yes, that James Comey) ran internal security for Bridgewater for three years, meaning that he was the one who pulled evidence from surveillance cameras for Dalio to use to confront employees during his trials.

In case the cult vibes weren't strong enough already, Bridgewater developed its own idiosyncratic language worthy of Scientology. The trials were called "probings," firing someone was called "sorting" them, and rating them was called "dotting," among many other Bridgewater-specific terms. Needless to say, no one ever probed Dalio himself. You will also be completely unsurprised to learn that Copeland documents instances of sexual harassment and discrimination at Bridgewater, including some by Dalio himself, although that seems to be a relatively small part of the overall dysfunction. Dalio was happy to publicly humiliate anyone regardless of gender.

If you're like me, at this point you're probably wondering how Bridgewater continued operating for so long in this environment. (Per Copeland, since Dalio's retirement in 2022, Bridgewater has drastically reduced the cult-like behaviors, deleted its archive of probings, and de-emphasized the Principles.) It was not actually a religious cult; it was a hedge fund that has to provide investment services to huge, sophisticated clients, and by all accounts it's a very successful one. Why did this bizarre nightmare of a workplace not interfere with Bridgewater's business?

This, I think, is the weakest part of this book. Copeland makes a few gestures at answering this question, but none of them are very satisfying.

First, it's clear from Copeland's account that almost none of the employees of Bridgewater had any control over Bridgewater's investments. Nearly everyone was working on other parts of the business (sales, investor relations) or on cult-related obsessions. Investment decisions (largely incorporated into algorithms) were made by a tiny core of people and often by Dalio himself. Bridgewater also appears to not trade frequently, unlike some other hedge funds, meaning that they probably stay clear of the more labor-intensive high-frequency parts of the business.

Second, Bridgewater took off as a hedge fund just before the hedge fund boom in the 1990s. It transformed from Dalio's personal consulting business and investment newsletter to a hedge fund in 1990 (with an earlier investment from the World Bank in 1987), and the 1990s were a very good decade for hedge funds. Bridgewater, in part due to Dalio's connections and effective marketing via his newsletter, became one of the largest hedge funds in the world, which gave it a sort of institutional momentum. No one was questioned for putting money into Bridgewater even in years when it did poorly compared to its rivals.

Third, Dalio used the tried and true method of getting free publicity from the financial press: constantly predict an upcoming downturn, and aggressively take credit whenever you were right. From nearly the start of his career, Dalio predicted economic downturns year after year. Bridgewater did very well in the 2000 to 2003 downturn, and again during the 2008 financial crisis. Dalio aggressively takes credit for predicting both of those downturns and positioning Bridgewater correctly going into them. This is correct; what he avoids mentioning is that he also predicted downturns in every other year, the majority of which never happened.

These points together create a bit of an answer, but they don't feel like the whole picture and Copeland doesn't connect the pieces. It seems possible that Dalio may simply be good at investing; he reads obsessively and clearly enjoys thinking about markets, and being an abusive cult leader doesn't take up all of his time. It's also true that to some extent hedge funds are semi-free money machines, in that once you have a sufficient quantity of money and political connections you gain access to investment opportunities and mechanisms that are very likely to make money and that the typical investor simply cannot access. Dalio is clearly good at making personal connections, and invested a lot of effort into forming close ties with tricky clients such as pools of Chinese money.

Perhaps the most compelling explanation isn't mentioned directly in this book but instead comes from Matt Levine. Bridgewater touts its algorithmic trading over humans making individual trades, and there is some reason to believe that consistently applying an algorithm without regard to human emotion is a solid trading strategy in at least some investment areas. Levine has asked in his newsletter, tongue firmly in cheek, whether the bizarre cult-like behavior and constant infighting is a strategy to distract all the humans and keep them from messing with the algorithm and thus making bad decisions.

Copeland leaves this question unsettled. Instead, one comes away from this book with a clear vision of the most dysfunctional workplace I have ever heard of, and an endless litany of bizarre events each more astonishing than the last. If you like watching train wrecks, this is the book for you. The only drawback is that, unlike other entries in this genre such as Bad Blood or Billion Dollar Loser, Bridgewater is a wildly successful company, so you don't get the schadenfreude of seeing a house of cards collapse. You do, however, get a helpful mental model to apply to the next person who tries to talk to you about "radical honesty" and "idea meritocracy."

The flaw in this book is that the existence of an organization like Bridgewater is pointing to systematic flaws in how our society works, which Copeland is largely uninterested in interrogating. "How could this have happened?" is a rather large question to leave unanswered. The sheer outrageousness of Dalio's behavior also gets a bit tiring by the end of the book, when you've seen the patterns and are hearing about the fourth variation. But this is still an astonishing book, and a worthy entry in the genre of capitalism disasters.

Rating: 7 out of 10

Reviewed: 2024-02-24