Hedge fund billionaire gets more billions for retirement

When Ray Dalio, the multi-billionaire founder of the world’s largest hedge fund Bridgewater Associates, announced his retirement in October, both he and the firm he founded more than four decades ago viewed the moment as solemn.

Mr Dalio, 73, told his millions of LinkedIn followers that he felt “great about the people” he handed the reins to. And one of Bridgewater’s two new chief executives, Nir Bar Dea, sent an enthusiastic message to customers: “Ray’s transition is complete!”

But neither Mr. Dalio, known for his credo of “radical transparency,” nor Bridgewater said then or since that he hardly went without a fight. His departure – spurred in part by controversial remarks he made on television about China’s human rights record – followed more than six months of frantic behind-the-scenes arguments over how much money his successors at the firm were willing to pay the billionaire to leave .

In the end, Mr. Dalio, with an estimated net worth of $19 billion, agreed to relinquish control of all major decisions at Bridgewater only if the company agreed to pay him billions of dollars in regular payouts through a special class of stock for years to come .

These secret agreements were described by half a dozen current and former Bridgewater employees, who said they risked angering Mr Dalio and could be sued by the company if they spoke publicly. At an internal meeting last year, during the heat of the exit negotiations, Mr Dalio described the hedge fund as his “property rights,” according to a staffer, and indicated he expected compensation accordingly.

Mr Dalio did not respond to requests for comment.

Bridgewater, which manages about $125 billion on behalf of public pension and sovereign wealth funds, is dealing with a situation that’s becoming increasingly common in American businesses. The founders of companies big and small seem unwilling to let go, or are being told to step down when there is turmoil.

Recently, Marc Benioff returned from tech giant Salesforce to run the company he co-founded in 1999, cutting around 8,000 jobs. Howard Schultz, now on his third round as Starbucks CEO, seems intent on crushing company-wide efforts to unionize store workers.

Google founders Larry Page and Sergey Brin have stepped in and out of their company multiple times. And over the summer, Bill Conway, one of the founders of investment giant Carlyle, took the reins after the abrupt departure of the chief executive and this month helped select a new one.

While boardroom struggles seem far removed from the concerns of everyday American workers, upper-management disputes often wreak havoc on the lower echelons. In the investing world, disruption can be such a distraction that it hurts fund performance and pressures retirees and others who count on steady returns from their investment managers.

Many founders retain power even after selling a majority of their company because they hold a special class of shares that gives them more voting rights than regular shares and allows them to remain in control of company decisions.

Mr. Dalio’s relationship with Bridgewater goes well beyond that. He was the company’s chief executive, chief investment officer, and chairman—sometimes alone, sometimes with partners, and sometimes all at once.

At the same time, Mr. Dalio has publicly portrayed himself as something of a management guru, promoting an unusual workplace philosophy he calls “radical transparency.” At the core of this is that Bridgewater records most of its staff meetings and broadcasts them company-wide as proof that it’s a place where hard truths can be spoken openly.

He’s talked about how he ranks employees in categories like “willingness to hit the nerve” and “quick learner from mistakes.” Under his direction, Bridgewater spent millions of dollars on custom iPad software that allowed employees to rate one another on a scale of 1 to 10 in dozens of personality categories in real time.

In 2017, Mr. Dalio published “Principles,” a best-selling book that laid out his leadership principles. (“Be ready to ‘shoot the people you love,'” read one.) Since then, he’s been a regular speaker at TED conferences and prolific on Twitter.

Mr. Dalio and Bridgewater unveiled his retirement plans more than a decade ago, in 2009, when he informed the firm and its clients that he was beginning to step down from his responsibilities. That turned out to be easier said than done. Bridgewater cycled through a seemingly endless group of wannabe bosses while Mr. Dalio found reasons to oppose almost all of them, and vice versa.

A former co-CEO, Eileen Murray, sued the firm for discrimination after she left the company in 2020, a matter later settled out of court. She had shared the role with David McCormick, who resigned just over a year ago to run the Pennsylvania Republican primary for the Senate, which he lost.

Eileen Murray, a longtime Bridgewater executive who became co-CEO in 2017, left the company in 2020.Credit…Mike Blake/Reuters

Meanwhile, Mr Dalio sent mixed signals on whether he would stay or go, telling employees and investors he would only leave if he was confident the right leadership was in place.

In mid-2018, Bridgewater said it was partnering as part of a long-term plan to break away from founder control. In theory, this should have transformed the firm into an entity controlled by its top people rather than one man.

But Mr Dalio wasted no time in telling colleagues that he was not interested in a simple handing over of the baton, according to current and former employees. He reached out to dozens of top employees — at the time Bridgewater had around 1,500 full-time employees — and told them they had to buy his stock with their own money, some of those employees said.

According to two former employees, Mr Dalio offered to arrange 10-year loans for those who didn’t have the funds to buy him out. If they declined, he indicated that they should consider leaving the company, they said. But even as he sold shares to his colleagues and reduced his holdings, his founder shares remained in control.

Mr Dalio has also not withdrawn from the public eye and has often drawn criticism. .

In a CNBC interview in fall 2021, Mr Dalio dismissed concerns about China’s human rights record, likening the country’s government to a “strict parent”. (Bridgewater manages billions of dollars for companies partially owned by the Chinese government.)

“Shouldn’t I invest in the United States because of our own human rights leadership?” he asked.

The comments drew criticism from Washington, where Senator Mitt Romney called them a “sad moral lapse.” Customers called Bridgewater to ask if Mr. Dalio’s views reflected those of the company, two people with knowledge of the matter said. The company never addressed the matter publicly, although Mr Dalio later said he spoke sloppily.

The brouhaha didn’t seem to soften his views. Inside Bridgewater, Mr. Dalio reinforced a rule that required him to personally review the company’s widely read business newsletter, called Daily Observations, for mentions of China and edit it to prevent others from mentioning it dampen his praise, said one of the people.

Although some at Bridgewater retained a fondness for Mr. Dalio and his history in the company, others were apoplectic at the time. That left Mr Bar Dea, one of the co-chief executives, with the task of speeding up negotiations to finally get his boss out, two people with knowledge of the matter said. A former Israel Defense Forces major and relative newcomer to the investment world, Mr. Bar Dea joined Bridgewater in 2015 to conduct economic research and quickly rose through the ranks.

In January 2022, he was promoted to the top position alongside Mark Bertolini, former Aetna CEO, although current and former employees say Mr Bar Dea is primarily associated with Mr Dalio.

Back-and-forth between Mr. Dalio and senior Bridgewater executives dragged on for much of 2022, with Mr. Dalio insisting he would not simply hand over his life’s work.

Finally, both sides agreed on a proud price. According to an announcement by Bridgewater, Mr. Dalio would relinquish his titles, take on a new role as “mentor to the CIO and investment committee” and remain on the hedge fund’s board of directors. (Last month, Bridgewater informed clients that Mr. Bertolini was stepping down from his role as co-CEO to become a “CEO mentor.”)

Mr. Dalio also received a new, special class of personal shares that the company informally calls “Ray’s shares,” which will pay him the equivalent of a hefty dividend before anyone else at the company gets paid, two people with knowledge of the matter said.

Based on those agreements — as well as how long Mr. Dalio lives and how long Bridgewater survives — the payouts could reach billions of dollars.

Despite Bridgewater delivering handsome returns to investors through the first three quarters of 2022, the company’s flagship fund plummeted in the fourth quarter, just months after Mr Dalio’s departure in October. It fell another 7 percent in January while shares rose sharply.

This puts strong pressure on the company to turn things around. Bridgewater no longer publishes its assets under management on its website. From its peak of around $160 billion, the amount fell to around $125 billion late last year, according to people familiar with the company.

In the meantime, Mr. Bar Dea has started dismantling some parts of Mr. Dalio’s legacy. Bridgewater dropped many of its “principles” and associated assessment tools. Giving each other unvarnished feedback — an integral part of Mr. Dalio’s “radical transparency” — is now optional, current employees said.

Still, some of Mr. Bar Dea’s changes have a nod to the hedge fund’s old ways. He has recently begun telling his staff that he will create his own list of “principles.”