‘Ray’s shares’: The secret deal that sealed billionaire investor’s messy exit

Google’s founders, Larry Page and Sergey Brin, have stepped in and out of their company several times. And over the summer, Bill Conway, one of the founders of the investing behemoth Carlyle, took the reins after the CEO left abruptly, and helped choose a new one this month.

While battles in the executive suite may seem far removed from the concerns of everyday American workers, strife in upper management often creates havoc lower in the ranks. In the investing world, upheaval can be such a distraction that fund performance suffers, squeezing retirees and others who count on steady returns from their investment managers.

Many founders, even after selling off a majority of their company, retain power because they hold a special class of shares that give them more voting rights than regular shares and allow them to maintain control over company decisions.

Dalio’s relationship with Bridgewater goes well beyond that. He has been the firm’s CEO, chief investment officer and chair — sometimes solo, sometimes with partners and sometimes all at once.

At the same time, Dalio has portrayed himself publicly as a management guru of sorts, promoting an unusual workplace philosophy that he calls “radical transparency.” The gist of it is that Bridgewater tapes most of its employee meetings and broadcasts them firmwide, as evidence that it is a place where hard truths can be spoken about openly.

He has discussed how he ranks employees in categories such as “willingness to touch the nerve” and “quick to learn from mistakes.” Under his direction, Bridgewater spent millions of dollars on custom iPad software for employees to rank each other in real time on a 1-to-10 scale in dozens of personality categories.

In 2017, Dalio published Principles, a bestselling book that laid out his leadership rules. (“Be willing to ‘shoot the people you love,’” read one.) He has since become a regular speaker at TED conferences and is prolific on Twitter.

Dalio and Bridgewater rolled out his retirement plans more than a decade ago, in 2009, when he told the firm and its clients that he would begin to turn over his responsibilities. That proved easier said than done. Bridgewater cycled through a seemingly endless group of would-be CEOs as Dalio found reasons to reject nearly all of them, and vice versa.

One former co-CEO, Eileen Murray, sued the firm for discrimination after she left in 2020, a matter later settled out of court. She had shared the role with David McCormick, who resigned a little over a year ago to run in the Republican primary in Pennsylvania for the Senate, which he lost.

All the while, Dalio sent mixed signals on whether he would stay or go, telling staff and investors that he would leave only when he was certain that the right leadership was in place.

In mid-2018, Bridgewater said it would become a partnership as part of a long-term plan to move away from founder control. In theory, that should have transformed the firm into an entity controlled by its top employees rather than one man.

But Dalio wasted little time in telling colleagues that he was not interested in a simple passing of the baton, according to current and former employees. He approached dozens of top employees — at the time, Bridgewater had roughly 1,500 full-time staff members — and told them they would have to buy his shares with their own money, some of those employees said.

Dalio offered to arrange 10-year loans to those who lacked the funds to buy him out, according to two former employees. If they declined, he intimated that they should consider leaving the firm, they said. Still, even as he sold shares to his colleagues, decreasing his ownership, his founder shares kept him in control.

Dalio didn’t recede from public view either, often attracting criticism. In a CNBC interview in fall 2021, Dalio dismissed concerns about China’s human rights track record, likening the country’s government to a “strict parent.” (Bridgewater manages billions of dollars for companies partly owned by the Chinese government.)

“Should I not invest in the United States because of our own human rights leadership?” he asked.

The comments attracted reproach from Washington, where Senator Mitt Romney labelled them a “sad moral lapse.” Clients called Bridgewater, asking whether Dalio’s views represented those of the firm, two people with knowledge of the matter said. The firm never addressed the matter publicly, though Dalio later said he had spoken sloppily.

The brouhaha did not appear to soften his views. Inside Bridgewater, Dalio reasserted a rule dictating that he personally must review and edit the firm’s widely read economic newsletter, called the Daily Observations, for any mentions of China, lest others tone down his praise, one of the people said.

By then, although some at Bridgewater retained a fondness for Dalio and his history at the firm, others were apoplectic. That left Bar Dea, one of the co-CEOs, with the task of speeding up negotiations to get his boss out for good, two people with knowledge of the matter said. A former major in the Israeli Defense Forces and relative newcomer to the investing world, Bar Dea, now 41, joined Bridgewater in 2015 to perform economic research, and rose swiftly through the ranks.

In January 2022, he was elevated to the top role alongside Mark Bertolini, former CEO of Aetna, though current and former employees say it is Bar Dea who mainly deals with Dalio.

The back-and-forth between Dalio and Bridgewater’s senior leaders stretched on for much of 2022, with Dalio insisting that he would not simply hand over his life’s work.

Finally, the two sides agreed on a steep price. Dalio would surrender his titles, take on a new role as “mentor to the CIOs and investment committee,” and remain a member of the hedge fund’s board, according to an announcement by Bridgewater. (Last month, Bridgewater told clients that Bertolini would give up his co-CEO role to become a “CEO mentor.“)

Dalio also received a new, special class of personal stock that the firm informally calls “Ray’s shares,” which pay him the equivalent of a hefty dividend before anyone else at the firm is paid, two people with knowledge of the matter said.

Based on those arrangements — as well as how long Dalio lives, and how long Bridgewater survives — the payouts could reach billions of dollars.

Although Bridgewater delivered handsome returns for investors for the first three quarters of 2022, the firm’s flagship fund slumped in the fourth quarter, just months after Dalio’s departure in October. It fell an additional 7 per cent in January, while stocks rose sharply.

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That puts sharp pressure on the firm to turn things around. Bridgewater no longer posts its assets under management on its website. From its peak of around $US160 billion, the amount was down to around $US125 billion late last year, according to people familiar with the firm.

In the meantime, Bar Dea has begun dismantling some parts of Dalio’s legacy. Bridgewater dropped many of his “Principles,” and their associated ratings tools. Giving unvarnished feedback to one another — a stalwart of Dalio’s “radical transparency” — is now optional, current employees said.

Still, some of Bar Dea’s changes have a hint of the hedge fund’s old ways. He has recently taken to telling employees that he is coming up with his own list of “Principles.”

This article originally appeared in The New York Times.

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