Bridgewater strategist on hedge fund death and choosing the right employer
Bridgewater Associates isn't immune to the turmoil hitting the hedge fund industry – even if its recent layoffs focused on its operational staff – but while most hedge funds bleed assets, it's now getting bigger.
Paul Podolsky, a senior portfolio strategist at the $165bn hedge fund, told National Association of College and University Business Officers (NACUBO) 2017 Endowment and Debt Management Forum in New York that "death" in the hedge fund industry is expected.
“We opened our alpha fund for the first time in many years, and we had flows come in, not out,” he said. “You ask about hedge funds dying – they are always dying constantly – there’s a lot of death, and you’d expect that."
If you're seeking to break into the hedge fund industry, choose carefully he says.
“Over the years, I’d be going into finals to present, and many of the hedge fund firms I was up against are no longer around, and places that I applied to no longer exist,” he added. “There’s always a lot of death in the industry.”
To work at Bridgewater, you need to be able to adjust to its "kooky" culture. All meetings are recorded, you must adhere to the company's principles and you should expect to be openly challenged by your colleagues. It's not for everyone – founder Ray Dalio told Business Insider that 20% of people tend to leave in their first year, another 10% go after two years, and "then 70% stays. From that point forward, we have hardly any loss."
If you take a view at Bridgewater, expect to justify your position. Podolsky has a radical one – it's the worst investment environment since the 1930s.
“Every single downturn we’ve had going back decades has been cut short by provisions of liquidity, interest rates went toward zero and central banks realized if they printed money it could work as a shock absorber,” he said. “In addition, we’re in an environment of rising global populism, which happened in the ’30s for the same reasons, and it’s very dangerous. It could lead to significantly higher inflation or lower than expected inflation.”
Populism could pose a problem
Brexit, Donald Trump, Hungarian Prime Minister Viktor Orbán and French candidate Marine Le Pen are classic examples of right-wing populism.
“People remember the scariest versions of populism in the '30s, but we also had Huey Long in the U.S.,” Podolsky said. “It was a global phenomenon then, and the current eruption has the same root causes: high debt and low income, and you have a problem, because it creates very strong tension.
“It was true in the ’30s and it’s true now: Austerity doesn’t work – it typically causes a populist revolt,” he said. “Americans haven’t seen a rise in real wages in three decades, and populism is on the rise in terms of militarism and spending, which is a more tricky environment to negotiate [as an investor] due to low cash rates, central banks that can’t ease monetary policy and the rise of populism.
“Pools of wealth are destroyed when there is an imbalance between the cash flows and obligations.”
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