More Bridgewater Associates: Modeling Ray Dalio’s Modeling

Treat your life like a game.” – Ray Dalio

In many ways, aspects of this research are like playing a game of “Name That Tune.” With a few snippets of data, we try to figure out what’s going on with a trading or investment strategy – and by extension, the business strategy, too. Certainly, boosting the signal of a snippet or two of data can be done with contextual evidence; other snippets of data from neighboring strategies and players that help improve the accuracy of our interpretations. And yes, by now, this is all starting to sound a little rudimentary. “Of course. Obviously. Sure, that’s been well known for a while…”

But, though it now seems like years, it’s only been eleven months since publishing our first “Hiding in Plain Sight” post. It’s an understatement to say that we’ve learned a ton in that time because certain components of the landscape – a spectrum of strategies; zones and emerging rankings of competitors among them can now be seen with a high level of clarity, relatively speaking…

And though, there is much still to be done to achieve more clarity in the circles of competition closest to the sources of liquidity where we have placed much of our recent focus, the gravitational pull in several additional directions is definitely getting stronger. One major catalyst for this is the fact that leading players are becoming so much more multi-dimensional, in terms of cross-product, cross-market and multi-temporal nested strategy architectures. At least this is true of the hyperactive and active strategy categories that have historically represented so much mythology. However, simply looking through a US-centric, 13F securities lens still leaves our view of many of the large, global players mainly in the darkness…

Bridgewater Associates is one of these large, global players. Unique for many reasons, but particularly for their tenure, leadership, culture and application of quantitative and systematic methods to what amounts to a surprisingly traditional form of fundamental analysis. Bridgewater is unlike all of the other creatures that Alphacution has studied in this jungle to date. It is a special breed of quantitative global macro player; a mashed-up philosophy, economics and computer science think tank; a digital version of Soros or Steinhardt from the prior era.

Now, admittedly – since we have been so focused on the structural alpha zone and the hyperactive strategies that thrive there – we have yet to sufficiently complete much modeling on the likes of Cliff Asness’ AQR Capital Management and several additional legendary asset managers who are likely to provide the contextual awareness that allows to see a specific community within our ecosystem map.  We will get there, in time. Regardless, the act of planning that thread of our research already inspires the early outlines of a new, 3-dimensional visualization of our map – which is a little exciting given how much y’all seem to enjoy the eye candy…

For now, we return to Bridgewater to present an updated version of one of the charts from our first Feed post on the topic, except this time with the numbers: In the exhibit below, Alphacution presents the 13F gross (long) market value for Bridgewater Associates, LP for the 55-quarter period beginning Q1 2005 and ending Q2 2019.

Here, we want to summarize a few key points, and then call it a day: Clearly, most of the 13F securities exposures are in ETFs, which is theoretically consistent with a global macro player using liquid and low-cost ETFs to manage exposures to macroeconomic themes. Since Q1 2011, that aggregate ETF exposure has averaged 83.9% of a 13F portfolio that only averages 346 positions for the entire 55-quarter reporting period. And, since Q1 2017, the top 10 positions by value have exclusively been ETFs.

But, taking a concentrically-wider view of this vantage point, it is oddly illuminating that a firm reported to have $133 billion AUM as of year-end 2018 – and $235 billion in regulatory AUM – has only allocated $12.8 billion to the large 13F securities universe, which means most everything else is in fixed income, currencies and commodities (FICC) and non-US equities.

It’s an incremental gain in illumination, but when you’re trying to “name that tune,” every note counts…


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By | 2019-10-30T23:06:40+00:00 October 30th, 2019|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, the first digitally-oriented research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas with specific expertise in strategy research, risk management, and techno-operational development. Contact: feedback@alphacution.com; Follow: @alphacution.