Ray Dalio’s Famous Trade Is Sputtering, Investors Bailing

-- It was an irresistible pitch. Give us your money, executives at Ray Dalio ’s Bridgewater Associates and other hedge funds said, and we’ll funnel it into a money-minting, sure-thing strategy for the long haul. But now, after five years of sub-par returns, many of the institutional investors who sunk large sums into risk-parity funds, as they’re known, are demanding the money back.

First launched in 1996 to manage Dalio’s trust assets, it was billed as a way to use deep economic research to craft the best possible portfolio, instead of trying to call the next big thing. In a September presentation to the Indiana Public Retirement System, Bridgewater, the largest risk-parity manager, acknowledged that its All Weather fund has dipped below its expected returns. But the firm said it remains a superior way of allocating cash along a decade-long horizon, especially given the risk that stock gains will stall.

Money managers have started retooling the strategy away from its origins as an almost passive, long-term approach. Fidelity Investments launched a risk-parity fund in 2022 that can put on active trades to exploit market dislocations and also takes the market regime into account when tweaking exposures, says co-portfolio manager Christopher Kelliher.

To the strategy’s advocates, the move may prove short-sighted given lofty stock valuations while bonds are offering the highest yields in years.

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