The world’s largest hedge fund, Bridgewater, appears to have been caught cold by market developments as a result of corona uncertainty: hedge fund founder Ray Dalio admits that he and his team made wrong decisions.
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• The world’s largest hedge fund, Bridgewater, was hit hard by the corona crisis
• Ray Dalio admits misjudgments
• Combination with zero interest rate is dangerous
Even a legendary investor like Ray Dalio can make mistakes: That this happens to him at a time when the Financial markets Facing a historical challenge worldwide is bad timing and could cost its hedge funds billions.
The crisis was not adequately assessed
The Pure Alpha Fund II, Bridgewater’s most important product, is said to have lost 13 percent from the beginning of the month to mid-March. The fund has never performed worse: Most recently, the Pure Alpha 2008 collapsed in the double digits as a result of the financial crisis.
The current crisis is actually made for companies like Bridgewater, after all, many hedge funds are betting on falling prices on the stock markets.
This was also the case in 2008 for Ray Dalio, who ended the year with a plus because his company benefited from the crisis in the markets and brought in profits. However, the success story does not appear to be repeating itself in 2020, as the investor probably did not see the turmoil on the financial markets as a result of the Corona crisis.
In an interview with the “Financial Times” Dalio admitted that he had not reacted adequately to the market developments, instead he misjudged the situation. He and his Bridgewater colleagues hadn’t known “how we should react to the virus,” said the investor. Instead of taking out the risk, they “decided to stay in the existing positions”. This is unsatisfactory in that, as in 2008, the fund should actually generate profits in such a market situation, Dalio continued.
Dalio is worried
In the meantime, Dalio, who had emphasized a few weeks ago that he considered the effects of the virus on the financial markets to be exaggerated, has apparently recognized the seriousness of the situation. In a statement at the start of the week, he was concerned about the combination of zero interest rate policy and a spreading pandemic. “The combination of 0 percent interest rates and the uncertainty surrounding the COVID 19 outbreak is worrying,” said the investor. “Although it is an extremely serious infectious disease that will have many harmful economic effects, I am not afraid of these things alone. Combined with long-term interest rates that hit the hard 0% floor, it really worries me,” Dalio explained further.
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