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Ray Dalio's Flagship Hedge Fund Has Fallen 6% This Year

Bridgewater’s risk-parity All Weather fund is a bright spot.

Ray Dalio's Flagship Hedge Fund Has Fallen 6% This Year
Ray Dalio, billionaire investor and founder of Bridgewater Associates, listens during a Bloomberg Television interview at the Grand Hyatt in Beijing, China. (Photographer: Giulia Marchi/Bloomberg)

(Bloomberg) -- The flagship fund at Bridgewater Associates is missing out on the rebound that some macro managers are enjoying this year.

The Pure Alpha fund at Ray Dalio’s firm has tumbled about 6% through Aug. 23. The losses were fueled by bearish wagers on global interest rates, according to a person familiar with the matter. The fund, which bets on macroeconomic trends, is trailing the 13% return for the MSCI World Index. A more levered version of the flagship fund, Pure Alpha II, was down about 9% in that time.

Pure Alpha’s performance is in contrast to many peers, which are recovering after struggling for several years. Macro funds have gained 4.7% this year through July as rising volatility and roiling political tensions have created trading opportunities. But fund managers who have been betting that bond yields would rise have been burned. Yields have sunk to levels not seen before.

Dalio joins other well-known managers who have been caught on the wrong side of the rates trade. Michael Hasenstab, who runs $115 billion in fund assets at Franklin Templeton, had amassed the largest wager against Treasuries of any major global bond fund in a bet that rates will rise and bond prices will fall. Dan Ivascyn’s Pimco Income Fund, the world’s largest actively managed fixed-income fund, also took a hit as bonds rallied.

Ray Dalio's Flagship Hedge Fund Has Fallen 6% This Year

Dalio, who runs the world’s largest hedge fund firm with $160 billion in assets, has lamented the rate environment for several months. In a LinkedIn post Wednesday, he said the global economy is in the late states of the long-term debt cycle and that central banks have few levers left to reverse an economic downturn.

Ray Dalio's Flagship Hedge Fund Has Fallen 6% This Year

“Interest rates get so low that lowering them enough to stimulate growth doesn’t work well,” he said.

In July, the billionaire recommended buying gold as a way to profit while central bank stimulus nears its limit. He said the stimulus will spur investors to seek other forms of money such as gold.

At Bridgewater, other funds have also seen losses. The firm’s Pure Alpha Major Markets fund, which invests in a subset of the markets traded by the broader strategy, sunk 18% this year through Aug. 23, people said. It manages about $16 billion and since its 1991 inception has gained an annualized 12.5%.

A bright spot has been the firm’s risk-parity All Weather fund. It seeks protection from market turmoil by investing in a mix of stocks, bonds and currencies. The fund, which manages about half of the firm’s assets, jumped 12.5% so far this year, one person said. Another Bridgewater offering, the Optimal fund -- a combination of the All Weather and Pure Alpha strategies -- is up about 4% this year.

A spokeswoman for the Westport, Connecticut-based firm declined to comment.

To contact the reporters on this story: Hema Parmar in New York at hparmar6@bloomberg.net;Katia Porzecanski in New York at kporzecansk1@bloomberg.net

To contact the editors responsible for this story: Alan Mirabella at amirabella@bloomberg.net, Melissa Karsh

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