Key Takeaways
- • The Orange County Employees Retirement System ($21 billion pension) is considering dropping Bridgewater Associates' Pure Alpha fund after 16+ years of underperformance, with the fund's CIO recommending it be placed on a watch list.
- • Pure Alpha has delivered a 4.5% annualized return since 2005, underperforming its benchmark by approximately 2.5 percentage points, and has outperformed the pension's target only once in the last five years.
- • Bridgewater currently manages approximately $175 million for OCERS, representing roughly 10% of the pension's risk mitigation asset class allocation.
- • In 2020, Bridgewater lost $12.1 billion for investors during a year when the top 20 hedge funds globally achieved their best returns in a decade, highlighting significant performance divergence.
- • Being placed on a watch list does not guarantee divestment; consultant Meketa Investment Group acknowledged broader hedge fund industry headwinds while noting Bridgewater's efforts to improve performance.
Summary
The Orange County Employees Retirement System, a $21 billion California public pension, is evaluating whether to terminate its investment in Bridgewater Associates' Pure Alpha fund following persistent underperformance spanning more than a decade and a half. According to a memo from pension consultant Meketa Investment Group reviewed by Bloomberg, Pension CIO Molly Murphy has recommended placing Pure Alpha on the fund's watch list—a preliminary step that signals serious concerns but does not automatically trigger divestment.
The underperformance is quantifiable and material. Since OCERS' initial investment in Pure Alpha in 2005, the fund has generated a 4.5% annualized return, falling approximately 2.5 percentage points below its benchmark. Over the critical five-year period, Pure Alpha outperformed the pension's return target only once. Performance gaps widen across longer measurement horizons: the strategy has lagged benchmarks over both seven- and ten-year periods. Pure Alpha currently represents nearly 10% of OCERS' risk mitigation asset allocation, making it a meaningful but not dominant portfolio component.
For context, Bridgewater manages approximately $175 million for OCERS, a negligible fraction of the firm's $105 billion in hedge fund assets under management. The broader hedge fund landscape deteriorated in 2020, when Bridgewater lost $12.1 billion for investors—a particularly striking result given that the world's top 20 hedge funds achieved their best returns in a decade that same year. Despite this recent setback, Dalio's Bridgewater, founded in 1975, remains recognized as a historically significant performer and was still considered the best-performing hedge fund manager of all time according to LCH Investments.
The watch-list designation reflects industry-wide pressures rather than Bridgewater-specific judgment alone. Meketa consultants acknowledged in their memo that numerous hedge funds have struggled in recent years while noting Bridgewater's active efforts to restore performance. No final decision on divestment has been made, and the watch-list status represents a monitoring phase rather than a terminal assessment.
The underperformance is quantifiable and material. Since OCERS' initial investment in Pure Alpha in 2005, the fund has generated a 4.5% annualized return, falling approximately 2.5 percentage points below its benchmark. Over the critical five-year period, Pure Alpha outperformed the pension's return target only once. Performance gaps widen across longer measurement horizons: the strategy has lagged benchmarks over both seven- and ten-year periods. Pure Alpha currently represents nearly 10% of OCERS' risk mitigation asset allocation, making it a meaningful but not dominant portfolio component.
For context, Bridgewater manages approximately $175 million for OCERS, a negligible fraction of the firm's $105 billion in hedge fund assets under management. The broader hedge fund landscape deteriorated in 2020, when Bridgewater lost $12.1 billion for investors—a particularly striking result given that the world's top 20 hedge funds achieved their best returns in a decade that same year. Despite this recent setback, Dalio's Bridgewater, founded in 1975, remains recognized as a historically significant performer and was still considered the best-performing hedge fund manager of all time according to LCH Investments.
The watch-list designation reflects industry-wide pressures rather than Bridgewater-specific judgment alone. Meketa consultants acknowledged in their memo that numerous hedge funds have struggled in recent years while noting Bridgewater's active efforts to restore performance. No final decision on divestment has been made, and the watch-list status represents a monitoring phase rather than a terminal assessment.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.