On the first Sunday night of October, Greg Jensen hosted Ray Dalio at his New York City apartment to toast the biggest transfer of power in the history of the $4 trillion hedge fund industry. Over a meal of halibut and grilled cabbage, Jensen, Dalio, and their two wives, marveled at their relationship and the transition atop the world’s biggest hedge fund firm that had just taken place.
Starting in a much more modest two-bedroom New York City apartment 47 years earlier, Dalio had built Bridgewater Associates into a $150 billion colossus, and for a long time it was unclear whether he would actually ever hand over the business he created. The rollercoaster transition process dragged on for 12 years, with fits and starts that included Jensen’s own demotion. The vast majority of hedge fund firms don’t outlast their founders.
Even as recently as Valentine’s Day 2022, the issue remained in doubt. Jensen had become frustrated working out the final details of how Dalio would relinquish control and ownership of Bridgewater, with tough sticking points over the sharing of future economics remaining. Jensen was scheduled to be married in Anguilla six days later and was determined not to have the tense talks going on over Zoom destroy his wedding. During a pause in the negotiations, Dalio turned to Jensen and told him how much he was looking forward to joining Jensen at his wedding, shocking some of those on the call who were locked in battle over various points.
“It was a good moment. You could be battling here but the big things – one of the great things about Ray is he is always there for the big things,” Jensen said in an interview with MarketWatch. “You have disagreements, you work together, you stay together and you make it to the other side.”
Greg Jensen is having an astonishing year. With stocks and bonds crashing, Jensen has helped navigate Bridgewater toward an incredible 2022, nailing inflation and the upheaval it has caused. Bridgewater’s flagship hedge fund was up 34.6% in the first nine months of the year as the U.S. stock market fell by nearly 20%. At 48, Jensen is now one of two co-chief investment officers at Bridgewater, together with Robert Prince, who is 63, and Jensen is poised to lead Bridgewater’s trading strategies for years to come. In addition to also getting married in 2022, Jensen even won a coveted World Series of Poker bracelet at this year’s fabled event in Las Vegas.
Jensen co-runs a team that plays in every market imaginable – stocks, bonds, currencies and commodities – and is a regular contributor to Bridgwater’s Daily Observations newsletter, closely read by large institutional investors and policymakers. He is now on the MarketWatch 50 list of the most influential people in markets.
“He’s 25 years and a day younger than me, so I figure he’s got 25 years and a day ahead of him,” said Dalio in an interview with MarketWatch, in which he expressed deep affection for Jensen. Dalio pointed to Jensen’s ability to work with teams to drive fundamental market research and convert it into trading algorithms, describing Jensen as a key part of his professional family that will move Bridgewater forward. Said Dalio: “You don’t want to stand in their way.”
The only thing stopping 2022 from being perfect for Jensen is the poor performance of Bridgewater’s passive All Weather strategy, but Jensen is confident that will turn around. More than a year ago, he was publicly pounding the table about inflation and warning that “the world is bad for investors going forward.” By the summer of 2021, Jensen, Prince and their team had dissected the causes of rising prices and concluded they were not all coming from the supply side of the equation — then the underpinning of the view held by Federal Reserve policymakers that supply shortages related to COVID-19 were creating inflation. Instead, they separated how much of it was being caused by the increase in demand and determined the economy was in a demand-driven inflation boom, fueled by checks written by the government that sparked consumers to buy goods and services without the corresponding boost in supply because many of those consumers were not producing anything more.
“Markets missed it totally,” said Jensen. “The Fed missed it, and in a sense the markets believed the Fed.”
Now, Jensen is preparing for a deep and long economic recession that he believes will hit corporate profits and stocks harder than the markets expect, presenting monetary policymakers in the U.S. and across the world with difficult decisions ahead. He doesn’t anticipate stocks bottoming out for at least another six months.
“We are expecting a much bigger recession than the markets are expecting,” said Jensen, adding stocks are likely to drop at least another 20%. “You might go way past that, but I think it would be about another 20% to get to equilibrium levels given where real interest rates are and where growth in earnings are likely to net out.”
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Greg Jensen moved around a lot as a kid. He didn’t like it. Born in Queens, Jensen cycled through places like Long Island and Toronto, before landing in the upstate New York town of Niskayuna. Jensen’s father worked for Irving Trust Bank until he left after a corporate merger and ended up working at an environmental data company.
A bit socially awkward, Jensen loved sports, but he did not excel on the playing field. Instead, he gravitated toward games that combine math and probabilities, like poker and Stat-O-Matic Baseball, in which player cards and dice are used to simulate ball games. After several months in a new town, he would find friends who shared his interests.
At Dartmouth College, Jensen studied math and economics, and became president of his fraternity. A former fraternity member who graduated years earlier had started working for an obscure hedge fund firm then based in Wilton, Ct., and decided he wanted to recruit someone from his old stomping grounds. As a result, Jensen ended up with an internship at Bridgewater Associates. Once he got there, Jensen knew he had found his people.
Ray Dalio had founded Bridgewater as a research and consulting organization with a Daily Observations newsletter that developed a strong following. Dalio pivoted toward money management after the World Bank gave him a $5 million account in 1985, focusing on macro investing and betting on large economic themes that cut across fiscal and monetary policies of governments. Ten years later, in 1995, when Jensen showed up to intern on Bridgewater’s trading floor, the place was still a small shop with 45 employees. To some, Dalio’s ideas about cultivating a workplace with brutal honesty and meritocracy could seem harsh, but Jensen loved the culture Dalio was building with Prince and found it cool to try to understand how currency or bond markets worked and translate those insights into trading algorithms.
“Even as an intern, Ray and Bob would listen to my ideas and think about whether I was right or not,” recalls Jensen. “I thought this is the mix. To take a place that cares about something interesting, that’s trying to have a discipline about it, and is really open to different points of view.”
Jensen returned after college and rode shotgun on the spectacular Bridgewater rocket ship. He focused on currency research, then ran the whole research department, and within a decade became a co-chief investment officer. He soon added the co-CEO title. These were go-go days at Bridgewater. The firm deftly navigated the internet bust as its main hedge fund scored big returns between 2001 and 2004. At the time, Dalio made the decision to go big and transform Bridgewater into as large an operation as he could make it. The firm was perfectly positioned for the 2008 financial crisis, when Bridgewater’s main hedge fund returned 9.5% while the markets crashed. Bridgewater also had successful years coming out of the crisis in 2011 and 2012. Investor cash flooded in and Bridgewater became the biggest hedge fund firm on the planet.
“We had three partners. There was a trio of three chief investment officers who each thought differently in their own way and could work great as a trio,” Dalio said of himself, Jensen and Prince. “We all brought different strengths and weaknesses … No one person can do it alone and any firm that is dependent on one person doing it is in trouble.”
Still, becoming co-chief of the world’s biggest hedge fund firm by age 36 left Jensen feeling like he could do no wrong. As Dalio kept heaping new responsibilities on him, Jensen, by his own admission, became a little arrogant. Jensen struggled to draw people into his initiatives and started to “believe my own bullshit,” he said. Over time, he also became impatient that Dalio was not transferring control of Bridgewater to Jensen and others fast enough, as had been planned, without recognizing that he himself was not doing enough to make such a transition work, Jensen said. In 2016, Jensen was stripped of his co-CEO title and went back to solely concentrating on Bridgewater’s investment activities as co-CIO, together with Dalio and Prince. For Jensen, it was a painful period of self-reflection and failure that taught him valuable lessons. He now views the experience as crucially important.
“Watching myself and, to some extent Ray, fail together on those moves and build from there,” Jensen said. “I wasn’t doing the things necessary to get us there.”
For his part, Dalio said he put Jensen in a difficult position. Dalio himself had tried simultaneously being a CEO and investment chief, juggling client meetings and managing day-to-day operations of a big company, while also being responsible for investment functions. “It’s too much,” said Dalio, adding he found handling all these tasks overwhelming.
“I thought so much of Greg I passed him that job, but it didn’t work out,” said Dalio. “And look at this, he didn’t leave, he wasn’t a Prima Donna. He stayed there, he took the step down and went through the difficult process, but the relationship and firm were of paramount importance and he learned and gained greater strength.”
For a while longer, Dalio wrestled with getting the right people in the right roles. A number of different people cycled through top management positions, including the CEO spot. But David McCormick, who was CEO of Bridgewater until he left in 2021 for a failed U.S. Senate run, followed by Nir Bar Dea and Mark Bertolini, Bridgewater’s current co-CEOs, successfully managed the day-to-day issues of the firm while delicately navigating the transition and the interests of many employees, Jensen said. Seeing them do their work underscored for Jensen what he did wrong and that he belongs in the investment management part of the business, where he feels he excels. Jensen is also fully aware of the extraordinary step Dalio took to hand over power at Bridgewater.
“Ray, in the end, had the final vote and giving that up was a big deal. Almost nobody ever does,” said Jensen.
For Bridgewater’s younger staff members hitting their prime – many of whom revere Dalio – the leadership transition is crucial and assuages their fears that they would never get to shape the firm’s future and might be better off moving on to other opportunities.
“This is like the year, it’s like we’re really going to move on past Ray for real, we are really going to do it,” said Karen Karniol-Tambour, Bridgewater’s co-chief investment officer for sustainability. “Greg is kind of the holder of the mantle, probably the most important role he’s played in my view is solidifying a generation of leaders, myself included, who will kind of be on that mission and feel like we’re building something together here that’s going to be a continuation in some ways and different in others.”
Ray Dalio built the most profitable hedge fund firm in history. In October, he relinquished control of Bridgewater Associates in an extremely rare generational transfer of a hedge fund firm.
Two weeks after his capstone October dinner with Dalio, Jensen spent the weekend reading about 600 pages of Bridgewater markets research. This is generally how Jensen and Bridgewater’s investment staff spend their weekends, preparing for a Monday morning Zoom meeting that sets their agenda.
In late October, that meeting focused on China and Xi Jinping’s promotion of loyalists to top leadership positions and the resulting sell-off in China’s markets. Jensen viewed the development as further contributing to deglobalization – a trend that is inflationary because it boosts corporate operating costs – and impacting global capital flows.
At the meeting, Jensen, Prince and their group of 150 investment professionals further struggled with whether the deep economic recession they are expecting will help inflation rates fall and to what extent that will support stock markets in the face of collapsing economic growth. Jensen believes late October’s bear-market rally in stocks is “a mistake,” that reflects market expectations inflation will keep falling quickly and painlessly, but the dynamic behind the rally is keeping him on his toes.
“We are wrestling with whether our current process is thinking through the benefits of falling inflation,” Jensen said.
“‘He didn’t leave, he wasn’t a Prima Donna. He stayed there, he took the step down and went through the difficult process, but the relationship and firm were of paramount importance and he learned and gained greater strength.’”
Jensen is not expecting a soft-landing for the economy, especially when the Federal Reserve has to decide whether to raise interest rates into a slowing economy, a phase he believes will be “a risky period for equities.”
Like for many institutions, COVID-19 served as a turning point for Bridgewater. The firm was blindsided by the economic impacts of the pandemic lockdowns and lost a lot of money. It was a non-economic shock that many of the research and trading algorithms Bridgewater had accumulated for years were not prepared fully to handle.
In response, Bridgewater created an investment committee and the new structure really clicked. Performance has turned around in a big way. The firm also moved its entire staff to the leafy 53-acre Nyala Farms campus in Westport, Ct., closing its offices across town that had housed Bridgewater’s investment operations for years so the whole firm could be at one location. It’s nearly impossible to get a parking spot there now on Tuesdays and Wednesdays, when all the staff is required to be on site. The rest of the week, they can work remotely.
The way Jensen, Prince and Bridgewater’s investment team see it, the Fed is still in the middle of its significant monetary tightening and not close to the end of it. The rate hikes and quantitative tightening will end, but even if it’s three to five months from now, Jensen said, it will likely be even longer before the U.S. central bank begins to ease monetary conditions. “You probably won’t see the bottom of the equity markets until they begin easing, six to seven months from now, and you probably won’t see the end of the bottom of the economy for another nine months or so after that.”
Jensen is also very focused on corporate profit margins, which exploded during the pandemic, fueled by checks the government sent to households that employers didn’t have to fund. In other words, the companies got the revenues without the expenses. But now, revenues are starting to fall while the labor market remains tight, leading to higher wage costs as revenues are turning in the opposite direction.
“You are going to see an earnings move in our view much more significant than the economic move, which is going to be much more significant than the markets are expecting,” said Jensen. “The markets are expecting a moderate economic move and a very minor move in profits. We think they’re missing it.”
Jensen is betting that “2023 will likely be the year of a very significant global recession,” but he’s less sure how the Fed will handle it, whether the U.S. central bank will reverse tightening policy quickly or more gradually. A more gradual tightening would be worse for equities. Either way, Jensen thinks the days of monetary policymakers targeting inflation of 2% are over. “Inflation will now be floored at 2%,” Jensen predicted.
Over the last few years, Dalio, Jensen’s old boss, preached that “cash is trash,” suggesting that holding cash was a bad investment decision. Dalio reversed course on that idea this year as interest rates soared abruptly, crushing almost every asset class other than the U.S. dollar. It has been a uniquely terrible environment for Bridgewater’s passive All Weather strategy, which holds a diversified mix of stocks and bonds and aims to perform well in good markets and bad. It’s difficult for the strategy to do well when cash is king and All Weather is down 27.2% in the first nine month of 2022. Jensen said it’s unusual for policymakers to allow cash to outperform for a long period of time and expressed confidence in the strategy. All Weather has delivered a net return of 6.4% since its inception in 1996.
“Any year in which cash is the best asset, All Weather is going to have a poor year,” Jensen said. “And yet, the loss in All Weather, as painful as it’s, is normal.”
Not surprisingly, Jensen is also bullish on Bridgewater. One of the things going on with the Bridgewater story is the return of macro investing. For years, the investing style languished, as policy moves across the globe remained stable and consistent. The lack of macro volatility could be seen not only in Bridgewater’s returns, but in the uninspiring returns of other big macro managers. Many of them shrunk or went out of business entirely.
“Starting right after COVID we went from our signals being at the lowest decile to the highest decile and we are still there,” said Jensen. “The opportunity to get things right is as big as it’s ever been.”