Bridgewater leads the drive for pure alpha

If self-belief in the merits of its investment strategy was the sole criterion for judging this year’s Money Management/IMCA Fund Manager of the Year Awards, Bridgewater Associates would have been a shoo-in.

After all, this year’s hedge fund manager of the year reportedly once threatened to ‘resign’ any clients from funds for not embracing the ‘portable-alpha’ strategy, essentially an enhancement of its renowned ‘pure alpha’ investing strategy.

In total, Bridgewater manages approximately US$163 billion in assets on behalf of 180 mainly institutional clients in the US and 19 other countries, including Australia.

Two of Bridgewater’s absolute return funds, Global Pure Alpha and Global All Weather, became available to private clients in Australia in 2005 — Bridgewater’s first foray into the retail market.

Founder and chief investment officer Ray Dalio told Money Management that the ‘pure alpha’ strategy is “based on a separation of alpha and beta, in what we call alpha-centric investing”.

“The approach is grounded in the belief that the returns of asset classes are primarily driven by changing fundamental conditions.”

The strategy represents the best of Bridgewater’s active management strategies combined into a single, highly diversified alpha strategy, according to Dalio.

It is structured to balance risk across a wide variety of lowly correlated active positions, maximising the power of diversification to raise returns while reducing risk.

A finalist in the Hedge Funds category, Gottex is distributed in Australia through the funds of Select Asset Management, with the fund manager attributing its good performance to its experience, people and processes.

“Gottex differentiates itself from other firms in being able to identify capable hedge fund strategies and managers, predominantly market neutral in approach [through the] depth, breadth and experience level of the investment team, many of whom come from trading backgrounds,” Select managing director Brendan Foley said.

Colonial First State (CFS), the other finalist, offers a range of multi-manager hedge fund products, with an investment philosophy to separate active risk from market risk.

“From a return perspective it makes us much more accountable for what part of the return was skill-based and what part of it was market performance,” CFS head of fund of hedge funds David Bell said.