In September 2017, Ray Dalio, the multi-billionaire founder of Bridgewater—for a time the world’s biggest hedge fund by a factor of more than two—released his book, Principles, which is essentially a set of rules for self-improvement. They celebrate independent thinking and non-hierarchical honesty, among other qualities. “I’ve made discoveries that can change the world, make the world a much better place, make people much better,” Dalio told one interviewer. “This is the best gift I could give the world.”
Other billionaires and big thinkers, from Bill Gates to Tony Robbins, concurred. “Ray Dalio has provided me with invaluable guidance and insights that are now available to you in Principles,” Gates raved.
As it turns out, the “principles” as wielded by Dalio at his firm—like “probing” each other to diagnose the source of a problem—were stunningly unprincipled, or so writes journalist Rob Copeland in his devastating new book, The Fund. One of the many incidents he relays happened after Dalio had hired former Apple executive Jon Rubinstein in 2016 to serve as co-C.E.O. and help develop the principles. “Ray, this is a religion,” Rubenstein, who had expected to find science, eventually told Dalio.
Copeland writes that Rubenstein had discovered, to his horror, that the principles were a “kaleidoscope of contradictions and a barely veiled weapon for abuse.” They “created a climate of fear and were a constant reminder that anyone who didn’t fall in with the company line would suffer immediate consequences.”
Rubinstein soon departed Bridgewater. Privately, Copeland writes, he held an even harsher view of the Bridgewater culture of radical transparency. “It’s a fraud,” he told a friend at the time.
As it turns out, the “principles” as wielded by Ray Dalio at Bridgewater were stunningly unprincipled.
As I read Copeland’s book in the wake of Sam Bankman-Fried’s conviction on seven counts of fraud, I couldn’t help thinking that there are different kinds of fraud. Of course, there’s financial fraud, like stealing $8 billion of customers’ money! But there’s also a very American and perfectly legal fraud that happens all the time where someone manages to create a persona in the public mind that is completely untrue.
Sometimes, like in S.B.F.’s case, the two are intimately bound up with each other. The picture Copeland draws of Dalio is of a man who has not broken the law but whose real character and leadership bear no resemblance to the image he’s desperately trying to put forward.
Fits and Starts
Ray Dalio, now 74, began life as Ray Dallolio. After a checkered high-school career, he figured out the academic world during college at a place called C. W. Post, on Long Island, and got himself into Harvard Business School. From there, his success was not linear. He failed in his first job (at a commodities-trading firm) and was fired from his second (at the then powerful brokerage Shearson), but after marrying Barbara Gabaldoni, a Whitney and Vanderbilt descendant, he launched Bridgewater.
At first, he “fashioned himself as an economist with a scientific approach to his work and as a global thinker who had insights on the history of business cycles,” writes Copeland. Although he was mostly an economic ghoul, repeatedly forecasting disaster, and was often wrong, there have been enough conflagrations, from 1987’s Black Monday to the first dot-com bust, in 2001, to the 2008 financial crisis, that he was right, and spectacularly so, a few times.
Along the way, Dalio seems to have figured out what he told one interviewer was the “Holy Grail of investing,” which was to split money into little pots of uncorrelated investments, use quantitative indicators to decide whether to buy or sell, and use leverage to amplify returns.
But managing money wasn’t Dalio’s real obsession. “Of Bridgewater’s roughly two thousand employees at its peak—and hundreds more temporary contractors—fewer than 20 percent were assigned to research or to the investment engine,” Copeland writes. “The rest worked on operations tasks, including the expansion of Mr. Dalio’s ‘Principles.’ After all, if investing could be reduced to a system, couldn’t people?”
Among the many great characters in this book is Paul McDowell, whom Dalio hired in 2009 to help him build a system that would rank employees, one that was eventually supposed to work in tandem with the principles. “On one of McDowell’s first days, Dalio reminded him that just as the firm’s hedge fund was, at its core, a machine, so was each person who worked there,” writes Copeland. “The key was to figure out which people (Dalio called them ‘pieces of equipment’) worked best together to produce the desired output, and to get rid of any unneeded parts.”
Over time, the system grew—metastasized—into a seriously scary surveillance state, where everyone was filmed at all times under the name of radical transparency. Bridgewater employees rated one another in real time, all the time, in a process known as “dotting.” The energy dedicated to sussing out what Dalio called “badness”—from imperfect avocados to whiteboards that didn’t work quite right—could have fixed global warming.
The principles “created a climate of fear and were a constant reminder that anyone who didn’t fall in with the company line would suffer immediate consequences.”
Whether or not Dalio’s pronouncements could be implemented in a productive way, the ones included in his book weren’t the ones actually used at Bridgewater, says Copeland, who writes that moving from one to the other was like “crossing from Adventureland to Fantasyland.” In any case, the lived reality was also wildly different than the words, because Dalio didn’t want any criticism to apply to him and often fired or demoted those who were brave enough to give it to him anyway. The end result was a sycophantic culture, and one where fear and intimidation prevailed. People were incentivized to attack each other, lest they be attacked first.
The book is full of delectably awful anecdotes about how badly people behave in such a culture. Copeland recounts how Jim Comey—yes, that Jim Comey, who worked at Bridgewater from 2010 to 2013 before he went to the F.B.I., where he rose to be the director—helped another Bridgewater executive set up Eileen Murray, then Bridgewater’s co-C.E.O., for the simple reason that he viewed her as competition.
After she was caught lying in an effort to protect herself from what she knew was a set-up, Comey investigated her “as if he had gotten Al Capone on tax evasion.” Dalio, who was delighted by the humiliation of others, eventually turned it into an instructional video—part of the culture was to have recordings of incidents like this one available in what was known as the Transparency Library—called “Eileen Lies.”
(Comey eventually resigned; Murray left and filed a $100 million discrimination suit against Bridgewater, accusing the firm of “publicly avowing transparency when it suits its interest, but seeking to harshly punish those who publicly report facts which Bridgewater perceives to be damaging to its image.” The lawsuit was settled out of court.)
Perhaps most telling is the simple evidence that none of it worked. “The more Dalio invested in the Principles, the more turnover there was, and the worse the firm’s performance was,” Copeland writes. But to admit it “would have been admitting a mistake—something he claimed to be quite good at but, as many who worked for him had learned, seemed to loathe in practice.”
Skepticism about Bridgewater’s culture, some of it written by Copeland, isn’t new, although it’s never been so thoroughly documented. Former employees are bound by strict N.D.A.’s, as well as their own fear. It’s a book that maybe only Copeland, who has reported on Bridgewater for more than five years, could write. There has also been skepticism about the numbers. Over the years, a handful of people, including Harry Markopolos, the accountant famous for outing Madoff, argued that Bridgewater must be a fraud. How could such a huge fund leave so few tracks of its trading? But none of the questions went anywhere. Copeland concludes bluntly, “Bridgewater was not a Ponzi scheme.”
Rather, it was an emperor’s-new-clothes scenario. “There was essentially no grand system, no artificial intelligence of any substance, no Holy Grail,” Copeland writes. “One investment opinion mattered at the firm’s flagship fund,” employees told him—Dalio’s. And although his core idea of systematizing trading may have been early, others soon took it much further—and so Bridgewater’s performance began to suffer.
“Bridgewater was not a Ponzi scheme.” Rather, it was an emperor’s-new-clothes scenario.
Copeland recounts how, in late 2016, some of the core members of the investment team did a study of Dalio’s recommendations. “The study,” he writes, “showed that Dalio was wrong as much as he was right. Trading on his ideas lately was often akin to a coin flip.” When they presented the results to him, Dalio “picked up the piece of paper, crumpled it into a ball and tossed it.”
This part of the book left me with more questions than answers. Why was Dalio so spectacularly successful in his earlier years? Do we believe that he’s a genius simply because he succeeded so wildly, and therefore the ends must be proof of the means?
What’s clear is that even as Bridgewater’s assets under management contracted, Dalio continued to reinvent himself as something much more than a mere investor. He’s discussed the principles on 60 Minutes and on the GOOP podcast with Gwyneth Paltrow, and Bridgewater’s Web site brags that the video explaining the principles has been watched more than 10 million times. The success of Principles “seemed to solidify Dalio’s belief in himself as an emissary from the world of high finance to the commoner,” writes Copeland. “The man who called himself an ‘economic doctor’ now had a reputation as someone with the cure to what ailed so much more than just business and finance.”
Will it matter that the whole thing was a lie? I’m not sure. F. Scott Fitzgerald famously wrote, “There are no second acts in American life.” He couldn’t have been more wrong—and I’m beginning to wonder if some degree of chicanery in the first act even matters, at least not if most people remain believers.
Bethany McLean is a journalist and the author of several books, including The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (co-authored with Peter Elkind) and, most recently, The Big Fail: What the Pandemic Revealed About Who America Protects and Who It Leaves Behind (co-authored with Joe Nocera)