Dalio’s Hedge Fund Risks Being Dumped by Pension on Weak Returns

A California county’s $21 billion pension is considering whether to drop Ray Dalio’s hedge fund after it underperformed for most of the past 16 years.

The Orange County Employees Retirement System’s investment in Bridgewater Associates’s Pure Alpha fund has returned an annualized 4.5% since 2005, about 2.5 percentage points less than its benchmark, according to a memo seen by Bloomberg from Meketa Investment Group, the pension’s consultant. The strategy has topped OCERS’s target only once in the past five years and has trailed on a seven- and 10-year time horizon.

Molly Murphy, the pension’s chief investment officer, recommended placing Bridgewater Pure Alpha on the pension’s watch list. A group of Meketa consultants concurred, adding that they would “evaluate potential replacements if needed,” according to the Aug. 25 memo.

While the $175 million that Bridgewater oversees for OCERS is a fraction of the roughly $105 billion it manages in hedge funds, Meketa’s recommendation to put the longtime stake on watch could cause other clients to exit. Meketa is one of the larger investment consultants, with $1.6 trillion under advisory.

“Typically, if a consulting firm recommends putting a money manager on a watch list for one client, there’s a good chance it will do so with its other clients, too,” said Brad Alford, head of Alpha Capital Management in Atlanta, which performs consultant and outsourced CIO searches for institutions. “This could spell trouble for Bridgewater.”

A spokeswoman for Westport, Connecticut-based Bridgewater declined to comment. Meketa’s consultants didn’t reply to emails seeking further comment.

Ray Dalio, billionaire and founder of Bridgewater Associates LP, speaks during the Bridge Forum in San Francisco, California, U.S., on Tuesday, April 16, 2019.