Ex-Employees Note a Hint of Turmoil in Bridgewater’s Recipe for Success

2017-03-06 11:26:04

 

Ex-Employees Note a Hint of Turmoil in Bridgewater’s Recipe for Success

It is not every workplace where a top executive is accused of lying on a video for every employee to see. It is also unusual for a company founder to fire an employee in a group email and then later dismiss it as simply a joke.

At Bridgewater Associates, the world’s largest hedge fund, that is how Ray Dalio, the firm’s 67-year-old billionaire founder, runs things.

Mr. Dalio’s firm is built on a foundation of “radical transparency,” a philosophy laid out in “Principles,” an employee handbook of sorts that he wrote. He attributes Bridgewater’s investing success over more than four decades to that philosophy.

But the firm’s culture has also fed undercurrents that have at times rattled employees, including senior executives. Interviews with dozens of former Bridgewater employees and contractors over the past year suggest an environment that can be intimidating, where every meeting is videotaped and employees are encouraged to openly challenge one another, sometimes in potentially humiliating ways.

The firm’s latest management shake-up came last week and included the departure of Jon Rubinstein, a former senior Apple executive nicknamed the Podfather for his work on the iPod. In announcing that Mr. Rubinstein was leaving just 10 months after joining Bridgewater as a co-chief executive, the firm said he was not “a cultural fit.”

Fitting in can indeed be difficult at Bridgewater, where as many as a third of the 1,500 employees leave within two years of being hired. And some of Mr. Dalio’s top lieutenants have been shuffled around, including David McCormick, who was promoted last week from president to co-chief executive, a title he previously held several years ago, and Greg Jensen, who was removed from his co-chief executive role last year and replaced by Mr. Rubinstein.

Despite the firm’s many years of producing better-than-average returns for institutional investors, Mr. Dalio’s management style continues to raise questions about how hands-on he will be in the future. His announcement last week that he would step down as co-chief executive, but remain as chairman and co-chief investment officer, was not expected to quiet those questions.

“Every time he says he’s stepping back, he may believe that, and he may want to do that, but when someone else does something he doesn’t like, he can’t resist stepping back in,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

Mr. Dalio has spent a great deal of time over the past year defending Bridgewater’s culture, in public appearances and in posts on LinkedIn.

In an emailed statement on Sunday, the firm said The New York Times had presented a “biased and distorted picture of Bridgewater.” It also cited an invitation from The Times seeking Mr. Dalio’s participation in a conference this week to discuss the firm’s “strong culture that encourages creativity, excellence and innovation.”

Yet four former Bridgewater employees described two episodes from five years ago that they said indicate how erratic that culture can be. The former employees asked not to be identified because they had signed nondisclosure agreements with the firm.

Eileen Murray, another co-chief executive and a longtime member of Bridgewater’s management committee, was at the center of one of the episodes, which came to be known at the firm as “Eileen Lies,” according to the four former employees.

James B. Comey, Bridgewater’s general counsel at the time and now the director of the Federal Bureau of Investigation, was responsible for investigating the matter.

Over several interrogation sessions that the former employees described as intense, Mr. Comey’s questioning focused on whether Ms. Murray had been dishonest about her dealings with a lower-level employee regarding his employment at the firm.

In the end, the lower-level employee was dismissed while Ms. Murray was admonished but kept her job, even though several top executives on Bridgewater’s management committee, including Mr. Comey, thought she was not telling the truth, the former employees said.

Videos of the interrogations were edited and later rolled out in a serialized fashion, a Bridgewater version of a reality TV show, said the former employees, who saw them. The videos also served as a case study as part of “homework,” a firm practice in which employees review and analyze recorded meetings and internal debates.

Mr. Dalio defended Ms. Murray at the time and said the matter involved something more like a white lie than a serious infraction, the former employees said.

Bridgewater said on Sunday that the episode showed “how seriously we take even trivial misrepresentations” and that “the management committee later apologized to Eileen for the situation.” The firm said that with the publication of the details in The Times, “a mountain has been made out of a molehill,” adding that it was “damaging to Eileen’s character.”

Efforts to reach Ms. Murray through LinkedIn were unsuccessful, and a Bridgewater spokesman said she had nothing to add.

The “Eileen Lies” episode occurred around the same time that Mr. Dalio stepped back from the firm’s day-to-day operations to allow Mr. Jensen — at the time another co-chief executive and Mr. Dalio’s heir apparent — to play a more active role. Mr. Jensen remains on the management committee.

But when a few employees did not complete a homework assignment, Mr. Dalio stepped back in, sending a companywide email firing at least one of those employees, according to three people who saw the email.

The email shocked some at the firm, which currently manages about $150 billion for around 350 large clients like pension funds and sovereign investors.

In a meeting with top managers after the episode, a number of Bridgewater executives complained that Mr. Dalio had made a rash decision, according to the former employees. Mr. Dalio later said that the episode was not meant to be taken seriously and that he was merely trying to shake things up, these people said. In the end, no one was fired.

On Sunday, Bridgewater described the episode as a “teaching moment,” saying that it was an “unsettling mistake that Ray made” and that he “appreciated being held accountable.”

Both episodes occurred about a year after Mr. Dalio began to sell some of his equity stake in Bridgewater back to the firm as part of a long-term plan to step back as a manager, according to an internal firm document reviewed by The Times.

Bridgewater’s three main investment funds were all up last year. All Weather Fund II was up 12.8 percent, the Optimal fund was up 7 percent, and the Pure Alpha II fund was up 2.4 percent.

Bridgewater has also pointed to the praise it has garnered over the years for its unique culture and management practices. The firm notes that in 2013 it was the focus of a case study by Harvard Business School, Mr. Dalio’s alma mater, that examined how the radical transparency philosophy had contributed to “its record-beating performance.”

Bridgewater’s emphasis on culture is unusual for an investment firm. Many employees’ day-to-day tasks include little discussion about specific trades and are instead more procedural and involve challenging peers and testing one another’s logic in meetings.

Bridgewater said in its statement on Sunday that employees spent about 15 minutes a day on homework, including “watching tapes of events,” and that the firm’s process of getting “multiple opinions” from employees was done to test “the logic behind key decisions” to ensure that they “are stress-tested.”

In past interviews, Mr. Dalio has dismissed criticism from former employees as not representing the views of most people at the firm. He has also taken issue with the unwillingness of most Bridgewater critics to speak on the record.

Former employees are required to sign ironclad confidentiality agreements that include a nondisparagement provision, which keeps many of them from talking about the firm.

And Bridgewater provides a financial incentive for long-term employees to keep quiet about their tenure by offering them “phantom equity awards” that enable them to participate in future earnings of the firm — even after they leave. Such awards effectively tie employees more closely to the success of the firm, according to an internal document reviewed by The Times.

In its statement, Bridgewater described the phantom equity awards as “an incentive system that is designed for the long-term well being of the firm.”

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