The Fund
A stunning new book about Bridgewater suggests Ray Dalio's Principles were used to obscure rather than reveal truth.
Pain + Reflection = Progress
An admirable principle, but when used by the world’s largest hedge it soured into abuse.
That’s the story told in The Fund: Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend, a new book by New York Times journalist Rob Copeland.
Bridgewater’s founder Ray Dalio, worth an estimated $15 billion, has become famous for promoting The Principles, rules for life and work that he credits for his firm’s rise to become the world’s largest hedge fund. It’s a philosophy that embraces radical transparency and a quest for truth so primal that his employees must be willing to humiliate themselves in its pursuit.
But Copeland, who has been writing about Bridgewater for over ten years, has long noticed a disconnect between Dalio’s publicly professed dedication to truth and stories about his behavior relayed by employees. Copeland eventually concluded that The Principles were a charade, an attempt to “retrofit” Bridgewater’s investment success into a philosophy invented by Dalio many years later1.
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The centerpiece of Dalio’s attempt to run Bridgewater according to The Principles’ doctrine of radical transparency was an internal software system, developed by Paul McDowell, that allowed employees to rate each other in real time on a variety of qualitative characteristics of which “believability” was the most important.
Lying made one a “slimy weasel” and this or other violations could lead to a trial, where Dalio would “probe” the transgression, often aggressively and always on tape, in order to get at the truth. This was done in the name of progress.
But Copeland says the system was rigged from the outset.
Everyone Is Equal, But Some Are More Equal Than Others
The first iteration of the rating system ranked several employees higher than Dalio on believability. McDowell saw this as good. The system was uncovering pockets of talent that might otherwise be overlooked.
Dalio viewed it differently. He thought believability should “cascade” down from him and McDowell dutifully modified the software so that afterwards Dalio’s score remained at the top. Copeland took years to uncover this feature which, if true, blows a hole in any claim that Bridgewater’s system was designed to uncover truth.
Also edited to hide rather than reveal truth were tapes of probings that Dalio turned into case studies. One famous case study, for years shown to potential hires as an example of Bridgewater’s culture of transparency, involved Dalio probing Katina Stefanova.
Stefanova was no ordinary transgressor. She was unusually close to Dalio and so mentally tough that her nickname was The Ice Queen. Yet here she was on tape crying hysterically – having a supposedly inappropriate emotional reaction to Dalio questioning her failure to hire enough new employees.
The tape appears to show Dalio trying to help Stefanova learn from her experience. But unknown to most viewers, it had been edited to remove his aggressive interrogation…and the fact that she was pregnant. What the case study presented as a tough but fair implementation of The Principles looks like bullying.
Stefanova was far from the only person to break down during these trials. Indeed, The Principles dictated that this was necessary, employees had to be willing to humiliate themselves in order to “break through”.
But what if they didn’t? What if they stoically took it on the chin?
Here’s what Copeland says happened to McDowell when years later he became a target:
“I welcome your probing, Ray. I imagine you’ll find all kinds of flaws and all kinds of things that I should have been doing better. It’ll be painful but I’ll be better as a result.”
That wasn’t the answer Dalio seemed to be expecting. That would be a win not by knockout but by forfeit. Dalio gave a long stare across the table at McDowell.
“You’re problem is that you don’t bust balls. You’re not a motherfucker. I need motherfuckers.”
McDowell didn’t know what to say, so he chose silence. To no one in particular, Dalio filled the silence.
“I want to kick him in the balls!”
Philosopher Heal Thyself?
As I read the book a thought wedged in my mind – if Bridgewater’s system was truly dedicated to uncovering truth, shouldn’t the system itself be subject to feedback, probings and modification?
Others had the same idea.
One of them was Jon Rubinstein. Nicknamed “The Podfather” for helping Steve Jobs create the iPod, Rubinstein was recruited to Bridgewater in 2016 as co-CEO. He quickly realized the management system had big problems:
Bridgewater’s thorniest problem, Rubinstein said, was hardwired into the firm. It was The Principles. Dalio’s ever-expanding rule book, Rubinstein said, was a kaleidoscope of contradictions and a barely veiled weapon for abuse.
Ray, this is a religion.
Dalio sat calmly, only interjecting a few times. When Rubinstein appeared to have wrapped up, Dalio sat quietly for a moment. When he spoke, his tone was flat and unemotional. He suggested they follow The Principles to resolve the disagreement. The Principles dictated that a council of trusted third parties should decide the way forward. It just so happened, Dalio said, that such unimpeachable witnesses happened to be in the room right then. He went around the room and asked Bridgewater’s top brass if the agreed with Rubinstein’s take.
Jensen said he did not.
Prince said he did not.
Murray said she did not.
McCormick said he did not.
“See, Jon, you’re looking at it wrong,” Dalio said.
This sums up the foundational flaw of radical transparency in the workplace. Whenever there is an imbalance of power, the person with less of it will be circumspect about speaking the truth. And workplace power is always imbalanced.
Maybe the executives quoted above really did agree that Rubinstein was “looking at it wrong”. But if not, what’s their upside to disagreeing with a billionaire boss, especially when that risks the prospect of being subject to a public probing? The book overflows with examples where, on the surface or in a TED talk, The Principles sound good, but their implementation in a culture dominated by a single, controlling person served to obscure rather than reveal truth.
Shouldn’t a system, or a person, dedicated to uncovering truth recognize this flaw and try to fix it? Maybe the publication of The Fund will be the ironic catalyst for such a change.
Humiliating for Dalio? Maybe.
But at least - and at last - he will have broken through.
Listen to Rob Copeland and I discuss the book on the latest Ideas Lab podcast.
Bridgewater threatened Copeland with three separate lawsuits to prevent the book being published (but never took action) and has called it “…a false and misleading portrayal of our company, culture and community.”
glad you’re back! look forward to the podcast...