Wall Street

Bridgewater's Bosses Are Fighting Over Something

If the hedge fund were managed by computer, it would look like this.

But where do I sit?

Photographer: Andrew Harrer/Bloomberg

The funniest thing I read today is this Wall Street Journal story about Bridgewater, the biggest hedge fund in the world. Much of life at Bridgewater is recorded on video, and it seems like a combination of "The Office" and slow TV:

One video shows Mr. Dalio standing at a dry-erase board and demonstrating how the marker ink won’t fully rub out with an eraser, according to people familiar with the video. Mr. Dalio prods Bridgewater employees at length about why they bought the dry-erase board, why it doesn’t work and how the bad decision could have been avoided, those people say.

The animating conflict of the story is that there's "an unprecedented showdown" at Bridgewater, a power struggle between founder/guru Ray Dalio and co-Chief Executive Officer Greg Jensen. They are locked in a mortal battle over ... umm ... something?

“The question here about Greg is whether he said things about me on tape in our meetings that he did not discuss with me before,” Mr. Dalio said in a written statement to The Wall Street Journal.

And the consequences could be ... nothing? Dalio and Jensen "have called for votes on each other’s conduct." But "the potential impact of the votes isn’t clear." It's just ... a vote? "The vote results and each person’s individual votes will be made available to the rest of Bridgewater."

I joked on Twitter that I never understood how Bridgewater gets any investing done, but of course there's a computer that does the investing. ("After honing ideas through debate and discussion, Bridgewater employees write trading algorithms that buy and sell investments automatically, with some oversight.") One stylized model for thinking about Bridgewater is that it is run by the computer with absolute logic and efficiency; in this model, the computer's main problem is keeping the 1,500 human employees busy so that they don't interfere with its perfect rationality. 1  This model might predict that the computer would create a series of distractions for the humans; the distractions would keep the humans busy, but if you examined them closely, there would be telltale signs that the intelligence that designed them was not completely human. "In an iPad app called 'Dot Collector,' employees weigh in on the direction of conversations while they are happening." "Any meeting of at least three people is expected to hold at least one poll." "One former Bridgewater employee recalls debating with other employees for as long as an hour whether a misused apostrophe in one of Mr. Dalio’s research reports was intentional or not." 2 Good ones, computer!

The showdown at the top feels a bit like that too. The way power struggles at investing firms usually work is, there's some non-transparent process by which someone wins and someone loses, and then the loser is either kicked out or subjected to some sort of symbolic loss of status. 3  The symbolic loss of status that I often think about is this one, from a power struggle at Pimco:

After the forum, Gross devised a seating plan for a meeting of portfolio managers, relegating Balls, Ivascyn and Mather to the rows of the conference room instead of at the main table. The arrangement was perceived as a snub, according to a person familiar with the matter.

Balls, Ivascyn and Mather got their revenge, and Gross was gone a few weeks later. But imagine contesting power at a trillion-dollar investing firm that way, with seating arrangements. Actually, I bet you can imagine it pretty easily. "Next to comp, seating is the most important issue on the Street." 4  Human beings care deeply about their status, and there are lots of indicators of status -- like seating arrangements -- that are both instantly legible to humans and weirdly difficult to parse logically. 5  

These fuzzy, irrational, human status markers are of course a complete mystery to the computer that is, in my fanciful model, running Bridgewater, as are the vague processes by which winners and losers are typically decided. But the computer can create its own processes, and its own symbolic status adjustments. Like that vote. 6  People vote, and if you lose the vote you lose one unitless unit of status. The symbolism is pure: You are adjudged to have lost the showdown, and you know it, and the winner knows it, and everyone else knows it, but that's it. You should change your behavior, I guess, but you don't have to leave. You don't even have to sit somewhere else. 

Because the ways in which Bridgewater assigns status -- the "Dot Collector," the "Baseball Card," the "Believability Index" -- are so far from the normal human-legible status systems, I suspect that employees don't internalize and resent them in the same way that they'd stew over, say, having to sit in a bad place. I confess that I have no evidence for this. I'm pretty sure that, if I worked at Bridgewater, I would spend the entire two weeks of my career there alternately resentful and terrified. I am not alone: "About 25% of new hires leave Bridgewater within the first 18 months." A "core tenet" of the firm is "Pain + Reflection = Progress," and I gather that a lot of pain goes into the progress. But a key goal of the firm is to get employees to abstract away from their natural human reactions to these status-assigning decisions. 7 "How do you separate yourself from the discussion about you?" asks an employee in a "Culture Video" on Bridgewater's website. So much thinking in financial markets is about moving from the concrete realities of business and instruments to the abstractions of systems and factors; an employee's ability to abstract himself from himself is perhaps a good sign of his ability to reason abstractly about global macro trends. 

Anyway, like I said, my model is completely fanciful. Bridgewater isn't literally run by a computer, and its interpersonal conflicts are not literally resolved by algorithms. But soon they will be!

Bridgewater is working on a new app called “Dispute Resolver.” When it is finished, the app will suggest ways to handle disputes between disagreeing employees, help escalate the dispute to a mediator or even begin the process of forming a tribunal where both sides submit evidence, according to a person familiar with the matter.

Good one, computer. Good one.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. Or perfect-ish, whatever; "Bridgewater Associates' largest investment fund has had 15 straight years of gains and outperformed a hedge-fund index in 15 of the past 25 years."

    Incidentally, when Bridgewater's performance has faltered, I have wondered if it ever applied its legendary introspection meta-introspectively: If your returns are just so-so, what justification remains for running your hedge fund like an intense New Age meditation retreat? But I guess all in all the empirical case is pretty good.

  2. Or here is an effort by the computer to understand human emotion:

    Employees at the world’s largest hedge fund carry around iPads with an app called “Pain Button.” It tracks negative feelings like “angry,” “frustrated” and “sad” with the twist of on-screen dials.

  3. Or of money, but at the very top levels the money is just another form of status symbolism.

  4. On Sand Hill Road, too:

    It's important to sit in "the power corridor": Kleiner's trial brief dismisses some of Pao's complaints: "Many of the alleged discriminatory acts involve such minutiae as…Pao's office not being in 'the power corridor' (whatever that means)." Sounds silly, right? But based on managing partner Ted Schlein's testimony, it seems seating arrangements at Kleiner do say a lot about status: Asked why he didn't sit in the back of a conference room to make space at the front table for Pao and other junior partners, he responded, "That's not how the meetings work."

  5. Not sitting at the main table is as often a power move as it is a snub, really.

  6. Or, good lord, whatever this is:

    A video that Bridgewater titled “Eileen Lies” details the handling of accusations several years ago against Eileen Murray, a management committee member.

    She's the other co-CEO! She survived whatever symbolic humiliation that video entailed, with bells on.

  7. Dalio:

    "We describe it as: there's the upper-level you and the lower-level you. The human brain is part thoughtful man," he explains, "and part animal. And you have to drag yourself. And we see the struggle as between the upper-level them and the lower-level them." In other words the brain wants honest feedback but the emotions aren't always ready to handle it. "It's not a struggle between us and them typically. It's a struggle between what do they want" and "what happens in their emotional reactions to that."

    After 18 months, "some make it and some don't make it. And so we call it 'getting to the other side.'" 

To contact the author of this story:
Matt Levine at mlevine51@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net

Before it's here, it's on the Bloomberg Terminal.