The Fund - Rob Copeland | Manas J. Saloi

Note: While reading a book whenever I come across something interesting, I highlight it on my Kindle. Later I turn those highlights into a blogpost. It is not a complete summary of the book. These are my notes which I intend to go back to later. Let’s start!

McDowell explained to Dalio that this was a sign the system was working, that Bridgewater was fishing out the pockets of talent in its ranks—exactly as Dalio had asked him to do. Dalio’s voice made no secret of his irritation. Why doesn’t believability cascade from me? McDowell thought back to Dalio’s index card drawing. He realized that Dalio hadn’t been sketching out the mere concept of believability on top. He had drawn himself quite literally at the head, bestowing believability to all beneath him. The fix was obvious. McDowell assigned an underling to go into the software and program a new rule. Dalio himself would be the new baseline for believability in virtually all important categories. As the original, topmost believable person at Bridgewater, Dalio’s rating was now numerically bulletproof to negative feedback. Regardless of how everyone else in the firm rated him, the system would work to keep him on top. It would take more than two years to perfect the rigging of the believability system. The system was then rolled out for use on iPads, so that Bridgewater employees could input scores of one another in real time and see their scores dip or rise. Dalio’s own ratings, hardwired into the system, remained sterling. The man responsible for making Ray Dalio the paragon of believability would receive the promotion of his life. At year-end 2011, McDowell sat down with Dalio, and the Bridgewater founder handed over a sheet of paper on which he’d written McDowell’s bonus for the year.
One of the largest hedge funds on earth was Bridgewater Associates, and lucky for Stefanova, the fund was run by an HBS graduate, Ray Dalio. Founded more than two decades earlier, Bridgewater had stayed low profile even as it became enormous, investing more than $100 billion worldwide. Dalio was said to have prodigious skill at spotting, and making money from, big-picture global economic or political changes, such as when a country would raise its interest rate or cut taxes. This made both a lot of sense and none at all; what was it about Dalio and Bridgewater that made them so much better at predictions than everyone else in the world trying to do the exact same thing? There were rumors among competitors that it somehow involved ex-government agents whom Dalio had on the payroll. Stefanova found Dalio’s dismissiveness toward societal rules particularly alluring. He would tell a fable about a ravenous pack of hyenas murdering a young wildebeest. The wildebeest may suffer, but its death is necessary to promote evolutionary improvement. Dalio saw himself as a hyena. “What is best is acting in your self-interest,” he told her. Dalio seemed to live his ideals. Stefanova and others around her regularly saw him blow up on underlings, over matters large and small; few people seemed to stay in his good graces for long. Behind his back, employees talked openly about who would be the chum in any given meeting, thrown out as a target for him to thrash at.
A different message awaited Harris when he showed up for work at Bridgewater in late 2004. Dalio told him on one of his first days, “You’re not the CEO.” Not functionally, at least. Dalio remained president, chief investment officer, and head of the firm’s powerful management committee—with veto-proof control over major decisions at the hedge fund. Harris could be part of meetings, but he’d have to work his way toward the levers of power— to “find his box,” as Dalio put it. Dalio started Harris close to the bottom in client services, overseeing the marketing department. This wasn’t much of a gig. The firm had a rule forbidding anyone besides Dalio from talking to the press. Bridgewater had neither need nor want for extensive advertising. For clients, perhaps the most effective point of contact was Dalio himself. He was proving masterful with the world’s wealthy. He told one Bridgewater executive that he’d recently cozied up to the head of Abu Dhabi’s sovereign wealth fund, taking him on hunting trips to New England and helping him pick out suits on London’s Savile Row. Billions of dollars in investments flowed in. This was part of Dalio’s near-constant crisscrossing of the globe, from California, where the largest public-employee retirement system in the United States became a Bridgewater client, to Norway, Sweden, and the Netherlands, with their giant government-affiliated funds. The average account size swelled to nearly $400 million. Pure Alpha, the flagship fund, became a scarce good. Dalio continued to periodically open and then close it to new investment, saying the fund couldn’t possibly handle more money, a sales strategy that also made it seem like a more attractive scarce good. Clients who wanted to put more money with the firm were told Pure Alpha was closed but All-Weather was open.
Harris had no way of knowing it, but he was starring in the origin story of what some at Bridgewater would call the “MC cycle.” A newcomer would be hired with fanfare into the firm’s management committee (MC) to what seemed to be a lofty role. Within the first few days, the person would usually be asked to complete a basic assignment outside their usual expertise. After a suitable period of failure, Dalio would publicly question the person on their shortcomings (this step might repeat several times). Sooner or later, the new hire would likely depart, and the next new member of the management committee would be introduced. Inside the hedge fund, Dalio described this process as natural—and a way to weed out the unworthy from Bridgewater. He was applying his approach to investing rules—testing what worked, and throwing out what didn’t—to human resources. The MC cycle did not take long to run its course with Britt Harris. Just a few weeks after starting at Bridgewater, he fell ill and began a series of extended absences from the office. For several weeks, he did not sleep for a single night, a period that he later described as “hell on Earth.” On the days he did show up, he was pallid, often nonverbal, broken, mirroring the plant in his office, which was slowly turning brown from lack of attention. Bridgewater staff began taking bets on who would survive longer, the plant or the boss. Similar thoughts crossed Harris’s mind. His father had died at fifty-three, and Harris told colleagues he feared he might be on an even faster path. Less than half a year after his start, the CEO of Bridgewater Associates quit. “In classic total transparency,” Harris recalled, “Ray asked me to address the entire population of Bridgewater before I departed … a few minutes that I will never forget. Nothing could have been more difficult for a man in that condition.” Years later, Harris would say that his breakdown was connected to factors other than his work. He said that apart from his wife, no one was more supportive than Dalio, concluding that the Bridgewater founder’s final order to him was “an act of ignorance combined with a devotion to transparency which went too far.” Publicly, Dalio released a statement that read: “After six months of reflection, Britt decided it wasn’t for him.” Harris went directly from Westport into intensive treatment for depression.
As Bridgewater got bigger, the firm began to focus on problems that were ever smaller. Employees would check the issue log constantly, eager to see who and what in the organization were being exposed. Each entry in the log identified the complainant as well as the offender or, as Dalio called it, “the responsible party” (RP). The best way to get the attention of peers was to pile on new complaints about an existing RP. Once the RP was identified, the next step was to investigate the “root cause.” Dalio often cited the hypothetical example of a person who missed a train departure. The proximate reason for the error might have been that the person didn’t check the train timetables; the root cause was that the person was forgetful. Dalio had little patience for the idea that mistakes by Bridgewater staff could simply be momentary misjudgments. Each mistake was nothing less than a referendum on the person who made it. The issue logs flourished. Dalio added a requirement that each person at the firm log a minimum number of issues per week (ten or twenty at various points) or have his or her bonus docked. If something went wrong and hadn’t previously been exposed in the issues log, all those aware of the incident who should have filed about it earlier would be punished with low review scores. An employee was said to have left the office bathroom to discover that he had been logged by a bystander for failing to wash his hands. He had to answer for the root cause of his decision. Another new Bridgewater associate, not long out of Harvard College, logged about wilted peas at the cafeteria salad bar. Dalio saw the post and pressed the hedge fund’s new chief operating officer on what she was doing about the matter. She responded, “This is ridiculous. I shouldn’t be spending my time on this.” Dalio disagreed, saying there was no such thing as a small problem at Bridgewater. It escaped few at Bridgewater that shortly thereafter the peas were pristine.
Jensen soon took responsibility for smoothing out the boss’s rough edges. After meetings, he would translate for newer employees what Dalio meant when he gave instructions and coach them on how to use Dalio’s favorite phrases. In 2006, Dalio took Jensen along on an important business trip to Beijing, to introduce him to some of Bridgewater’s most valued clients. Dalio gave Jensen a copy of one of Dalio’s favorite books, The Hero with a Thousand Faces, by the late American professor Joseph Campbell. Dalio told Jensen that they were both on journeys similar to those of the heroes studied by Campbell—ones filled with trials, battles, temptations, success, and failure. The younger man was soon promoted to Bridgewater’s management committee. Jensen was one of the first at Bridgewater to apply the strict instructions of The Principles to his work. As head of research, he’d noticed a steady decline in the quality of the hedge fund’s daily economics note—the same one that had helped Dalio impress clients and the media so many years earlier. The insights were stale, and drafts often arrived late from the research analysts tasked with compiling them. The solution, Jensen announced, was found in The Principles. Borrowing a phrase from Dalio’s manifesto, he conducted loud “drill down” interviews of everyone in the trading department. He came up with ideas such as a button at every desk, meant to be pressed by staff when they detected a mistake, to better track when errors were made in trading or in the writing of the Daily Observations. At any other firm, this might have been viewed as the ordinary work of a manager helping smooth out problems on his team. Jensen, however, would not hear of accepting credit personally. He told colleagues that credit belonged to Dalio and The Principles. He sought an audience with Ramsen Betfarhad, a deputy assistant to Vice President Dick Cheney, in an effort to raise the alarm. Dalio showed up at the meeting with a stack of papers that indicated U.S. banks were sitting on trillions of dollars in potential losses, leaving Betfarhad spooked. Dalio also encouraged central bankers to print more money to buoy the economy. He launched into dire appeals to Treasury Department undersecretary David McCormick and at the New York Federal Reserve Bank, startling bank president Timothy Geithner. Two days after the Geithner meeting, the blue-chip investment bank Bear Stearns collapsed. Dalio’s well-timed warning sealed a relationship between the Bridgewater founder and the future treasury secretary. In these meetings and others, Dalio portrayed himself as a kindly supplicant offering a public good. There was merit to this; in sharing Bridgewater’s research with those in a position to make policy decisions, he was offering for free the type of insight for which clients around the world paid Bridgewater top dollar. Of course, Bridgewater also stood to benefit. While Bridgewater’s automated trading systems were positioned relatively conservatively, in 2007 and 2008 Dalio himself ordered a number of manual adjustments so the fund would profit more heavily from an overall decline, investment staffers there then recall. Throughout this period, he had placed a series of bets that would pay off if central bankers printed money to revive the economy—the exact move he had predicted. Bridgewater bought up Treasury bonds, gold, and commodities and shorted the U.S. dollar. The moves paid off. When central bankers pumped money into the economy, the result was that while the average hedge fund lost 18 percent in 2008, Pure Alpha ended the year up roughly 9 percent. Thanks both to the flagship fund’s strong performance and the flat fee that Bridgewater collected on the assets it managed overall, Dalio personally ended up making $780 million that year. The market would hit its nadir in March 2009. The following month, Bridgewater leapfrogged its rivals to become the world’s largest hedge fund. As the world hit rock bottom, Ray Dalio was on top.
Fortunately for the Bridgewater founder, that image of Jobs stuck in the mind of Kip McDaniel, a journalist crammed in coach on a long, against-the-headwind flight from New York to Los Angeles. McDaniel’s work was not at risk of being adapted into Hollywood movies. He was the founding editor in chief of Chief Investment Officer magazine, a quarterly that published specialized pieces for what could charitably be described as a limited audience. He was familiar with Bridgewater, in part because the hedge fund had helped get the magazine off the ground by paying it to publish some stories (“Risk Parity Consultant Views Survey, Sponsored by Bridgewater”). Using in-flight Wi-Fi, McDaniel shot off an email to a Bridgewater staffer. Would Dalio be interested in chatting for a piece that compared him to Steve Jobs? Before the plane was wheels down, McDaniel confirmed a three-hour, one-on-one interview with the founder of the world’s biggest hedge fund at his Manhattan town house. The next issue featured Dalio on the cover in a facsimile of Jobs’s book pose, complete with Dalio pinching his chin. The piece noted Jobs’s infamously short temper and observed, “As at Apple, working at Ray Dalio’s Bridgewater can be an experience in humility.” Still, McDaniel took pains to point out some meaningful differences: “But where Dalio uses cold logic, Jobs seemed to rely on instinct. Ray Dalio is Steve Jobs with a business school degree.” The headline for the profile on the cover asked, “Is Ray Dalio the Steve Jobs of Investing?,” a question that McDaniel intentionally left unanswered in the piece. Over time, the question mark faded. The next publication to compare the two men was Wired, which in an article about Apple acolytes included Dalio as an example and said he “has been called ‘the Steve Jobs of investing,’” a reference to McDaniel’s piece. That was enough to get Dalio’s official biography on Bridgewater’s website changed to read, “Ray has been called the ‘Steve Jobs of Investing’ by aiCIO Magazine and Wired Magazine.”
ON OCTOBER 5, 2011, Jobs succumbed to pancreatic cancer. Dalio noted in his usual daily economic commentary to clients, “This is no ordinary day, this is the day Steve Jobs died.” Dalio began to talk about Jobs ad nauseum, and some at Bridgewater concluded that he was less interested in Jobs’s accomplishments at Apple than in his outsize public persona. In Jobs, Dalio could see a model for his own hero’s journey. Both men were, charitably, viewed as jerks. Both had multiple legs to their careers. The difference was that while Jobs in his second stint had built Apple into a universally envied model for the technology world, Bridgewater was mostly known just in finance. Dalio concluded that the difference wasn’t in their work, but in their messaging. The solution was to have Walter Isaacson write Dalio’s biography. Those around him didn’t pursue it the first few times it came up, but Dalio persisted in asking if it was possible, so Bridgewater staffers put out the request. Word came back from Isaacson’s camp: it was a pass. Dalio’s disappointment showed, and an opportunity presented itself for David McCormick. What few would have known was that Dalio and Isaacson were more intertwined than it might have seemed. Dalio was a donor to the Aspen Institute, a white-shoe networking group for millionaires and billionaires to rub shoulders with former politicians and well-known intellectuals. McCormick was on the Aspen Institute board of trustees. Isaacson, who earlier in his career was the head of CNN, was now the Aspen Institute president. McCormick rang him up. Perhaps, as a favor to a patron, Isaacson would be willing to travel to Connecticut and speak with Ray? The visit was soon upgraded. Bridgewater went all out for Isaacson, treating him as a visiting dignitary. Rather than cram everyone into a conference room, the firm rented out the Inn at Longshore, a luxe spot on the Long Island Sound that typically hosts weddings. The venue put out hundreds of white chairs in front of a waterfront stage erected for Dalio and Isaacson to speak in what was billed as a fireside chat.
Dalio’s trips away from Bridgewater provided an opportunity for Greg Jensen. Perhaps with an eye toward proving that he could stand in for Dalio in the founder’s absence, Jensen did his best impression of the boss. The first visible step was to build his own base of power. His house parties helped with that, as did flying a group of his internal loyalists to the Super Bowl one year in a private jet. Everyone wanted to stay in Jensen’s graces, and to be invited into his crew—some women at Bridgewater even called themselves “Greg’s Angels.” But the social clout wasn’t quite enough. Dalio held the purse strings, and it was well-known that the Bridgewater founder was prone to doling out raises or pay cuts on a whim. Jensen apparently decided that he, too, could be a rainmaker. He began paying out million-dollar bonuses to members of the investment team from his own pocket, an unusual move that made some staffers less likely than ever to cross him. He also found a way to get Dalio to pay the investment staff more. Even by the standards of hedge funds, Bridgewater had a particularly strict policy forbidding its staffers from trading in personal accounts, lest they use knowledge from the world’s biggest hedge fund for personal profits. Jensen, though, knew that even the firm’s most junior analysts were desperate to trade on the side using their own ideas, and he helped convince Dalio of a work-around, called the trading game. Bridgewater investment staffers could put on dummy trades (betting that a certain stock would go up, for instance), and Dalio would take the other side. Dalio was essentially acting as the market. If the stock went up, Dalio would pay the difference; if it went down, the Bridgewater employee would owe Dalio. The proposal appealed to Dalio’s competitive edge, and he assented. With the investment staff sated, Jensen turned to the rest of Bridgewater. Given how much weight Dalio put in The Principles rating systems, it was no surprise that Jensen moved Paul McDowell over to report to him directly. Then Jensen began filling the ranks with more people of his own. In early 2013, he brought in J. Michael Cline, a journeyman entrepreneur and private-equity executive, to serve as Bridgewater’s vice-chairman. Cline had cofounded movie-ticket vendor Fandango before another of his ventures, a credit card services conglomerate, landed in legal trouble over aggressive debt-collection tactics in emergency rooms, cancer wards, and hospital delivery rooms. Cline, broad shouldered and with a full head of dark hair in his fifties, had a confident air and was prone to quick decisions. He seemed unlikely to wilt in the Bridgewater fray. In his interviews at the hedge fund, Cline mentioned that he was fan of “negative 360s,” a practice of calling around to find the most unflattering feedback possible on new hires or business partners. It was the only way, Cline said, to really know whom one was dealing with. Jensen ate it up, saying, “We’re soulmates. We think the same way.” To pair with Cline, Jensen needed an enforcer to replace his departed ally Comey. Cline came up with a name: Kevin Campbell, a longtime management consultant. Campbell demanded attention when he ambled into a room. He was, as one Bridgewater staffer approvingly put it, “four hundred pounds, but with the energy of a bear.” Campbell was swiftly hired.
Campbell was assigned work to clear the chairs around him. Eileen Murray had been demoted in the wake of her trial, Eileen Lies, but was sticking around and agitating for her co-CEO title back. She had in her corner Katina Stefanova, who reported to her, and who to Jensen’s visibly unending annoyance still seemed to occupy a soft spot in Dalio’s heart. David McCormick, still in the executive ranks after the clash with his former friend Julian Mack, was another clear threat. Jensen had the upper hand on them all. He knew The Principles better than anyone else, and everyone knew how important it was to Dalio that they be followed strictly. Jensen was also the primary exemplar of demonstrating that while it was admirable to follow The Principles in private, the real reward came from brandishing them as loudly as possible, ideally with Dalio in the room. When the Bridgewater founder returned from one of his trips, Jensen made his move. The occasion was an ordinary check-in meeting—to update Dalio on what had gone on while he’d been away—and the crowd wasn’t small. There were no such things as small crowds when it came to Dalio. The only hint that the meeting would be unusual was a poll sent out to employees a few minutes before: Is your time-off accounting correct? It was oddly specific. Jensen and Murray filed into the room separately, each with their own coterie, like boxers approaching the ring surrounded by a dozen or so in their crews. Seated across from Jensen, Murray steeled herself for the usual drill down. Instead, Jensen addressed a man to her side—one of her direct reports, a five-year Bridgewater veteran. Jensen began pleasantly enough. “How are you? Taking any time off? Getting any relaxation?” “Just golfing, here and there.” “How much time would you say you’ve been taking?” “Nothing out of the ordinary.” A gleam crossed Jensen’s eyes, people there recall. Jensen stole a look at Dalio, then at Murray, then quickly glanced at the cameras in the corners recording the whole thing. Seeming to milk the moment for all it was worth, Jensen slowly picked up a binder in front of him and dropped it back on the table. It landed with a thump, the only sound in the room. As he spoke, his voice lost any trace of friendliness, taking on an acid tone. “You’re entitled to three and a half weeks’ vacation, and you’ve been out of the office for six weeks.” Jensen pointed to the binder. The evidence was in there. He’d had his team check the security footage. “I don’t know if this is the right forum to talk about this,” the employee protested. “Maybe we could move it off-line—” Dalio stood up, cutting off the conversation. “This doesn’t look good. What is it, were you here or not?” “I think we should get on with the meeting,” the man said. “We should do it now,” Jensen said. He called up Kevin Campbell, Jensen’s hulking, deep-voiced prized hire. Campbell shifted the topic to Murray. This was a problem of management, he said gravely—or lack thereof. Murray had the wrong people in the wrong jobs, and she didn’t even notice if they were around. It was a violation of a crucial Principle: “Understand the differences between managing, micromanaging and not managing.” Dalio turned to Murray inquisitively. She was nearly speechless. This is an ambush, she said. Jensen hadn’t even given her a moment to review his vaunted binder of evidence. Dalio agreed to allow her the evening to review it and instructed her and the employee to appear in front of the management committee the following day for a full trial. Jensen began to prepare for the cross-examination. He never got the chance. Before the sun had risen, the employee had hired a lawyer, who negotiated a paid exit. The employee went to Dalio and said the whole endeavor was a farce: “Your questioner is the executioner. It’s rigged.” Without a warm body to probe, Dalio’s interest in the topic evidently evaporated. He’d already done a trial of Murray; it would have been too soon, and probably no fun, to conduct another so soon. Jensen showed up the next day jacked full of energy, ready to deal the body blow, but no one was left to flay. A chance to add a notch to his belt had slipped through his fingers.
THOUGH HIS promised ascension seemed in permanent stasis, Jensen was collecting a consistent consolation prize. Over just three years, 2011, 2012, and 2013, industry researcher Alpha reported that he made $815 million in total. While just a fraction of Dalio’s compensation, it was also enough to vault Jensen onto the industry lists of the highest-paid hedge fund managers—he made more than most of those who ran their own firms. Only a handful of people knew, however, another reason for him to stay. The Bridgewater founder had concocted a complicated arrangement in which the more money that Jensen seemed to make, the more he actually owed. Dalio had challenged Jensen, as a condition of the younger man’s employment, to slowly buy out the Bridgewater founder’s ownership. Jensen didn’t have nearly enough money, so Bridgewater lent it to him—essentially transferring slivers of his ownership each year, building up a gigantic IOU to the hedge fund’s majority shareholder, who just so happened to be Dalio. Jensen’s debt skyrocketed as the value of Bridgewater rose. When Dalio sold a piece of the firm to the Texas teachers’ pension fund, not only his own stake was impacted. Since Bridgewater was now worth more, it made Jensen’s own tithe that year even more expensive as well. The result of the arrangement was that the hefty paychecks that seemed, to outsiders, to be hitting Jensen’s bank account were actually repaying the loans. Much that seemed to be Jensen’s went to paying off his debt to Dalio, vis a vis Bridgewater (some of the rest went to paying out the bonuses that Jensen gave to his staff). The situation added enormous pressure on Jensen to keep Bridgewater’s investments in the green. He accomplished that, but only by a hair. Pure Alpha made just 5 percent in 2013 and 4 percent in 2014, while All-Weather alternated between up and down years. For Jensen, it was the exact wrong time for Bridgewater’s vaunted investment system to hit a cold patch. Midway through the rocky stretch, Dalio’s personal financial advisers arranged a meeting with Jensen. The team had noticed that Jensen’s debts were piling up, and they were worried that the two men’s fates were becoming uncomfortably intertwined. If Jensen couldn’t pay up, it could blow a hole in Dalio’s fortune. Their job, the advisers explained, was to stop that from happening. They asked Jensen to put up collateral to guarantee the loans. He stared back blankly. “I don’t have anything,” Jensen said. “Just my house.” The group agreed to punt the issue for another day.
Holland’s departure didn’t get much attention. Bridgewater employees not uncommonly left suddenly—by choice or not—without explanation. At Bridgewater you were in until you were out. Dalio sometimes referred to former employees as ex-spouses and said that asking their opinions on the firm was akin to asking a divorcée what his or her former partner was like. Departing staffers were nearly universally pressured to sign two-year noncompetition agreements, swearing not to work for any firm that could be considered a competitor, a category that included not just other hedge funds but many companies in financial services. The contracts barred former employees from telling future employers anything beyond anodyne reasons for their departure from Bridgewater. The contracts may have been so broad as to be unenforceable, but in any case, staffers signed them anyway, often reasoning that landing on Bridgewater’s bad side had no upside. One junior employee, let go in 2014, noticed that the wall of silence seemed to run in only one direction. While interviewing at a New York financial firm for her next job, she told the hiring manager that she had worked at Bridgewater and said the hedge fund would surely confirm at least her dates of employment. The manager called her later and said that the reference check had instead resulted in a tongue-lashing from the world’s biggest hedge fund. “Why the fuck would you want to hire her?” she was told a Bridgewater employee said to her new prospective employer. “Do you realize you’re messing with Bridgewater?”
A pit formed in McDowell’s stomach as he watched his creation lurch into action. Dalio and the rest of the Principalians fanned out across the firm, wielding McDowell’s tools, shooting the ones they loved. Anyone who walked into a meeting and saw his or her supervisor sitting plaintively, iPad open to the Dot Collector, ready to read out stats within, knew the end was likely near. McDowell’s work had become judge, jury, and executioner. What bothered McDowell more than anything else, he told friends, was that the tool, which amalgamated individual data points to come up with omnibus ratings, hadn’t been subject to independent testing. The little real-time analysis that McDowell had been able to perform showed a sad state of affairs, scientifically. When rating one another, employees tended to stick closely to the existing marks. If a person, for instance, had an average score of 7 in a category such as “Fighting to Get in Sync,” most of his or her new ratings would come in between 6 and 8. Instead of incentivizing the telling of tough truths, the system supported their hiding, or at least a degree of inertia. “Down-dotting” (Bridgewater-speak for giving a poor rating) a coworker resulted in an outsize risk the recipient would return the favor, producing a downward spiral for both. Thus, stasis largely ruled. Among those who regularly gave out fresh critical ratings to employees was Dalio. Staff lived in fear of a critical Dalio dot because it would disproportionately push the employee’s average down immediately and be followed by a cascade of similar negative ratings from others who saw the new, depressed baseline. There was no escaping the pile-on. It was death by dots.
One such executive was Niko Canner, the onetime CEO candidate who costarred in the HBS case study about Bridgewater and was held up in it as a paradigm of speaking truth to the Bridgewater founder. Canner was habitually obsequious and rarely said a stray word against Dalio, but he lost his box anyway after Dalio visibly tired of him. Dalio first referred to Canner as a chirper—the diminutive title once held by Jim Comey—then came up with a new epithet, a “cloud painter.” Cloud painters are philosophical to a fault, Dalio told Canner. They don’t go into the field or understand the mechanics of a job. If you tried to take cloud painters on a camping trip, they’d never figure out what supplies to bring. Though this was a qualitative judgment at a firm that prized itself on quantifying decision-making, a derisive new sobriquet from Dalio was a plainly dark mark at Bridgewater. Cloud painters at Bridgewater had no future. Canner resigned. Canner was a decently well-liked figure at the firm, and he earned a send-off for his years of dutiful service. The party was held at the Lookout, with many of the top Bridgewater executives in attendance, including Dalio. The Bridgewater founder ambled in a slow circle around the living room, drink in hand, then wandered over to Canner, lingering near the fireplace. Dalio swirled an olive around his martini, according to someone who was standing near them, and asked, “So, how would you sum up your experience?” Ever agreeable, Canner stuck to generalities. “I learned a lot. I’m taking away a lot that I know will be helpful as I help others.” That was the wrong response. Dalio winced at the faint suggestion of Canner as a bannerman for Bridgewater. “Don’t talk about us to the outside.” “No, I agree, I would never mention anything sensitive to anyone.” “I am not just saying sensitive things, I mean anything. I don’t want you to talk about us.” Dalio took a sip of his drink. Canner tried to explain himself again. “Ray, I will be discreet. I would never compromise anything sensitive.” “You are not to say anything about us after today to anyone.” “I need to be able to refer to my past experience. I would be thoughtful and favorable, I assure you.” Dalio drained most of the rest of his martini and looked down briefly at its dregs. His eyes raised to meet Canner’s straight on. “Let me be clear: whatever you say to the outside world, we will reciprocate.” As the evening neared its close, Dalio announced he had a surprise, a memento of Canner’s time at the hedge fund. With some buildup, Dalio produced a set of beautifully wrapped, heavy-looking book-size boxes. “This is the best gift anyone could have!” As the rest of the group looked on—Dalio beaming—Canner opened the boxes. When he saw what was inside, his face faltered for a split second, and then he recovered with a forced smile. Canner pulled out the contents. Included were Lucite-encased, permanent copies of Canner’s Bridgewater baseball card, filled to the brim with low ratings. On a stand-alone frieze Dalio had listed only Canner’s weaknesses, along with the negative ratings Canner had received. Canner offered an extended thank-you for the gift. Dalio responded, “As I always say, the best gift anyone can receive is knowledge of their own weaknesses.”
Bridgewater’s affiliation with government entities gave Dalio entry into a rarefied world. He became close with Wang Qishan, later China’s vice premier and widely considered the second most powerful person in the country, as the head of the Communist Party’s anticorruption arm. Wang had instincts that wouldn’t be out of place at Bridgewater; at one meeting of his own deputy investigators, he surprised the group with dossiers of their own transgressions. Wang’s apparent aim “was to terrorize the enforcers themselves,” the Economist reported, adding that “Failure to uncover high-level graft … would be ‘dereliction of duty.’” The publication called Wang perhaps the most feared man in China.
In 2015, inspired by the Chinese system, Dalio sought to re-create parts of it in Connecticut. Without telling clients or the public, he put out a call inside Bridgewater for young staffers who wanted to help reshape the firm in accordance with The Principles. This plum gig was one sure to provide a chance to impress Dalio. Those who stepped forward were assigned to a dizzying array of new enforcement bodies, with rather unsubtle names. The Principles Captains were those assessed to be the most knowledgeable about Dalio’s manifesto. These Principles Captains were fanned out across the firm and were meant to assess whether individuals were acting in a Principled fashion day-to-day. The Auditors monitored department heads whom Dalio didn’t manage individually. The Overseers had no easily definable responsibilities, save for reporting to Dalio on the goings-on of the other new groups.* “The worst thing,” said one employee, “is for an Overseer to find a problem before I find it.”
The crown jewel of Dalio’s new creations was called the Politburo, its name borrowed from the decision-making body of China’s Communist Party and first coined by Russian Bolsheviks. The roughly two dozen members of Bridgewater’s Politburo were mostly in their twenties or thirties. They were handpicked by Dalio and given vast remits to conduct investigations across the firm. Though theoretically meant to adjudicate disputes, the Politburo often created new ones. The members would barge uninvited into meetings—or listen to recordings afterward—and rate their colleagues. The members caught, and squelched, dissent before it reached Dalio’s desk. It was a dream come true. Now the Bridgewater founder had eyes and ears everywhere.
In the days that followed, Dalio’s quick temper grew shorter still. While walking on the indoor bridge that connected the two buildings of Bridgewater’s headquarters, he noticed faint pockmarks on the soft-wood floor. He ordered an investigation. He was told that the indentations came from high-heeled shoes. He immediately ordered up a new rule, sent via email to the whole firm. No high heels would be allowed at Bridgewater. That Dalio himself had to address scuffing on the floor was yet another reminder to him of the firm’s poor state. Around Thanksgiving 2015, Dalio called in his newest high-level hire, Culp, along with the rest of Bridgewater’s top brass, including Jensen, seeking to hear a plan for how Culp would use Dalio’s new set of Principles-based committees to set the firm straight. But Culp delivered a different message altogether: he told Dalio that too many people at Bridgewater had nebulous responsibilities and titles and spent all day listening to tapes of others, looking to spring a trap. Culp told Dalio to slash, not to build. Put one person in charge and give him or her some space. Dalio had been doing the exact opposite for the better part of a decade. Dalio offered a response for his newest hire: The problem was clearly Culp. Culp was not capable of understanding the advanced nature of Bridgewater’s management system. “You’re not conceptual enough.” Dalio fired Culp, stood up, and left the room. As the others present silently absorbed the firm’s latest hanging, Culp sat flabbergasted. He’d presented his honest take to a man who claimed to prize frank feedback and had instead been abruptly shown the door.
Jensen, having seen this movie many times before, moved to clean up the mess. “Ray can be difficult,” Jensen told Culp. Jensen explained that Dalio didn’t have a grasp on how the nuts and bolts of the firm worked, or how The Principles played out in practice. Culp listened as Jensen reminded him that no one was more disappointed than Jensen himself, who had been waiting endlessly for Dalio to hand over the keys to the firm. Not long after speaking with Culp, Jensen went even further with someone he should have known better than to trust, and in a venue that could not have been more poorly chosen. After an otherwise rote meeting of the Bridgewater management committee—a meeting taped and available for all to listen to afterward—Jensen pulled aside Murray. He told her, “Ray is crazy,” and that the two of them could run the firm much better without the Bridgewater founder. Jensen’s remarks were a riff on what he’d been complaining about for years. But in a mistake that would haunt him, Jensen failed to realize that this wasn’t the Bridgewater of yore. The Principles had stopped being something that Dalio’s surrogate son could control. An entire army of staffers was now at the firm dedicated to squelching would-be heretics. In just a few days the tape recording of Jensen’s idle talk to Culp was passed to the new squad. Murray, too, perhaps spotting a chance to get back at Jensen for his role in her not-so-distant trial under Jim Comey, made sure that Dalio was aware of what Jensen had told her while the recording equipment still hummed. A young Bridgewater associate transcribed the chats and sent them to Dalio with a message: your heir apparent is talking about you behind your back. It was a cardinal violation of The Principles. Dalio sicced the full force of the Politburo on his right-hand man.
Dalio declared an emergency, literally calling it a moment for “martial law.” Concurrently, he invented a new Principle, one that effectively reversed his stated sacrosanct beliefs: “Expect those who receive the radical transparency to handle it responsibly and don’t give it to them if they can’t.” This Principle was retroactively applied to the showdown between Dalio and Jensen. Staff still confused about where Jensen had disappeared to would find no answers in the Transparency Library. Only about 10 percent of people at Bridgewater could be “trusted,” in Dalio’s words, to be told the full story. The rest couldn’t handle it. Also in quiet, Dalio organized a roughly twenty-person team to work on a new company charter, augmenting The Principles with a set of laws on how to govern Bridgewater. The charter would lay out which day-to-day disagreements could be debated and which could be called for votes. It gave extraordinary power to the next Bridgewater CEO, a position that would seem to be now and forever out of Jensen’s reach—because Dalio asked for it to be written into the charter that Jensen could never be CEO again.
Rubinstein lived the life of a man who had all the choices in the world. A wiry, tall fellow who seemed not to have physically changed since his bar mitzvah, Rubinstein was eighteen years older than Jensen. He had made his reputation at Apple, where he earned the nickname the Podfather, for helping Steve Jobs create the first iPod. As the years passed, however, Rubinstein gained the reputation inside Apple as a practical, and somewhat irritating, square. He got into profanity-laden shouting matches with Jobs and other members of the Apple C-suite while opposing proposed design improvements to Apple products that he worried would be too difficult to manufacture. After sixteen years, Jobs decided that Rubinstein had a big ego and the two parted ways. “He never delved deep, he wasn’t aggressive,” Jobs said.
Hoping for a period of transition, with time to get his bearings, Rubinstein told Dalio he preferred to start quietly. Dalio, still smarting from the headlines around Jensen’s demotion and eager to put out a countermessage, had other plans. He told Bridgewater underlings to write up a client letter about the new hire and instructed his public relations team to leak it to reporters. Excerpts appeared in newspapers around the world. “Technology is pervasively important at Bridgewater, especially since one of our major strategic initiatives in the coming years is to continue building out the systemized decision-making that has been so successful in our investment area and to extend it to our management as well,” the letter read. Rubinstein’s phone blew up with well-wishers congratulating him on landing a prestigious gig at the world’s largest hedge fund.
In 2018, work leaked inside Bridgewater that Dalio had gone to visit Putin. Even some in the firm’s top ranks weren’t sure if it was true, and Dalio wouldn’t answer to underlings when questioned directly on the subject. For Karen Karniol-Tambour, known internally for deftly playing the game of agreeing with Dalio, it was too much. Karniol-Tambour was by mid-2018 cohead of investment research, a position previously held by Jensen, no slouch himself at parroting Dalio. Now she was faced with a decision: her job or her morals. First she chose the latter, rising from her seat at a Bridgewater town hall, shaking with nerves and voice rising, to assail Dalio about Putin. “How do you deal with this war criminal?” Dalio turned to look at her and responded, Don’t be so simpleminded. He told her to keep her emotions in check, as The Principles prescribed. “If you’re so smart,” he sniffed, “why aren’t you rich?”