From golf caddie to hedge fund boss

Ray Dalio is as much known for his off-the-wall management style as for being the most successful hedge fund manager in history.

The most successful hedge fund manager in history is a hard man to reach. Hunkered down in Bridgewater's backwoods campus deep in Connecticut, Ray Dalio only came to prominence two years ago forced into the limelight when a Wall Street gossip site, Dealmaker, leaked details of his draconian regime at the fund.

Bridgewater's long list of house rules includes an injunction banning gossip (the stuff of "slimy weasels") and a "no-holds-barred credo of open criticism", notes the Financial Times. All meetings are taped; all mistakes logged. One employee is said to have been "issue-logged" for failing to wash his hands after a trip to the bathroom.

Some of Dalio's braver employees know him as "the Ray-man" and not just for "his passing physical resemblance to the socially troubled savant played by Dustin Hoffman in the film of a similar name". A youthful 62, he often meditates in his office "to purge his mind of emotion".

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Nonetheless, "his views are taken seriously", says The Economist. He gets results. Last year alone, Bridgewater Pure Alpha Fund earned investors (mostly pension funds) $13.8bn, taking its total gains since 1975 to $35.8bn and smashing the record previously set by George Soros.

Like the Hungarian maestro, Dalio has formulated a distinctive investment strategy (see below) honed into 295 principles. Indeed, the firm's "Daily Observations" are required reading. One fan, former Fed chairman Paul Volcker, describes the detail of the research as "mind-blowing".

The son of a Long Island jazz musician, at just 12 Dalio was trading stock tips he'd heard while working as a golf caddie, says New York magazine. After college, he took a job on the floor of the New York Stock Exchange, becoming obsessed with commodities futures. He later went to work for the "Wall Street legend-in-the-making" Sandy Weill but lasted just a year. Some say Dalio was fired after a punch-up with his boss; others, for bringing a stripper to a client meeting. Either way, it spurred him to set up his own "boutique" aged 25.

"By hedge fund standards, Dalio's lifestyle is almost monastic," says New York. Married with four children, his home is "a flophouse" compared to those of his Greenwich neighbours. He seems to reserve his discipline for work. "Bridgewater is a cult," a former executive told "It's isolated, it has a charismatic leader and it has its own dogma."

Working there was so stressful, he recalls, that at least one employee used to throw up before meetings. But the firm's loyalists insist its "hive" ethos lets traders "focus on what really matters: beating the markets". And clients stick around. It's not a place I'd want to work, concludes one. "But it's the environment that I want my investment manager to be in."

How Dalio predicted the credit crisis

Predicting the credit crisis has become "the hedge fund version of having been at Woodstock", says New York magazine. "But Dalio and his team actually did it." For that he credits an investment model based on the "timeless and universal" idea that the global economy operates like "a giant machine", with certain cycles that repeat themselves during economic and political transitions.

"If you identified those patterns, as well as the smaller events that seemed to trigger them a Libor blip here, a rising debt ratio there you could build a computerised system capable of predicting booms and busts." In 2006, Bridgewater's computers began to indicate that the American economy seemed to be heading for what Dalio calls a "D-process" a sort of national bankruptcy.

Whereas George Soros credits the influence of the philosopher Karl Popper for his macroeconomic theories, Dalio's ideas are "entirely the product of his own reflections on his life as a trader and his study of economic history", says The Economist.

He drills down deep even simulating being an investor during past periods of economic turmoil, such as the US Depression or Weimar Germany, by reading daily papers from those eras and "trading" as if in real time. He believes the world is currently five years into a painful deleveraging process that could last another decade.

Dalio, who has $122bn under management, notes that "all deleveragings have ended with the printing of significant amounts of money". To that end, he credits US policymakers with achieving "the most beautiful deleveraging yet seen" a perfect balance of painful debt restructuring with injections of cash to keep demand growing.

But Europe is "ugly". Before the recent ructions, Dalio declared he was more optimistic that chaos will be averted in Europe due to the European Central Bank's recent interventions. "Let's hope he's right again."