has produced systemic risk that almost no one
is prepared to deal with.
ai5000: Does this confusion result in no
action at all? Are institutional investors
simply frozen in place in pre-crash
Prince: It seems that most investors are
just trying to wait this out. Pension funds
are underwater on a stock/bond trade, the
endowment system is underwater on an
illiquidity trade, banks are underwater on a
credit trade and households are underwater on
housing trade. But wealth has been destroyed
and isn’t coming back because it was inflated
by too much debt and leverage to begin with.
Investors made these bets, and they thought
they were doing everything by the book. It
turned out to be the wrong book.
ai5000: If confusion is actually what is
happening, what should be happening?
2009 Hedge Fund of the Year
Accepting their award, from left:
Bob Prince, Greg Jensen, and
Prince: This is a great time for people to learn
from their mistakes and to see the differences
in approaches. Almost every institutional
investor has an unbalanced portfolio with
too much equity and credit, so they will do
poorly when growth is worse than discounted.
This vulnerability was revealed by the recent
environment. Today’s conditions in the U.S.
are similar to Japan’s in the early 1990s.
Imagine how these portfolios will perform
over the next 20 years if things play out in a
similar manner. However, a Japanese portfolio
that was balanced with respect to growth and
inflation actually performed very well since
1990, roughly as well as a balanced U.S.
portfolio, which was in a boom. You don’t
In early April, PLANSPONSOR — the nation’s leading authority on retirement issues and sister publication
to ai5000 —recognized the best-in-class practitioners in the alternative investment space, including the
likes of The Boeing Company, the Teacher Retirement System of Texas, and New England Pension
Consultants. Prominent among the award winners—and the recipient of the Alties Award for the best
institutionally-focused hedge fund—was Westport, Connecticut-based Bridgewater Associates, which,
since its 1975 creation in an Upper East Side bedroom, consistently has produced outsized returns for
its varied investors.
Indeed, said PLANSPONSOR Founder and Director Charles Ruffel, it was not even close in regard
to the selection of the hedge fund complex that has best served its institutional customers this past
tumultuous year. Bridgewater Associates stood head and shoulders above the pack, said Ruffel, and
superb performance in a down market was far from its only attribute. “This is an investment manager
whose attention to client service and client communications are indisputably best in class—Bridgewater
is a firm that tells its clients exactly what to expect and then delivers on that expectation.”
Photography by Chris Ramirez / ramirezpix.com
6/16/09 9:53 AM