Key Takeaways
- • The Orange County Employees Retirement System (OCERS), with $20.8 billion in assets as of mid-2021, placed Bridgewater Associates' Pure Alpha hedge fund on its watch list, with a $175 million position representing just over 6% of plan assets.
- • Per consultant Meketa Investment Group, Pure Alpha has returned an annualized 4.5% since 2005, about 2.5 percentage points below its benchmark (T-bill plus 5 percentage points), and has lagged over three-, five-, and seven-year periods through June 30, 2021.
- • Pure Alpha gained 1.9% in the first half of 2021, 0.7 percentage points below its benchmark, and has struggled since 2018, when it returned 14.6%.
- • OCERS CIO Molly Murphy said watch-list status is not necessarily a termination signal, as some managers come off watch while others are terminated.
- • Bridgewater, which oversees $105 billion in hedge fund assets, was not expected to be materially affected by the loss of the OCERS mandate, and neither Bridgewater nor Meketa commented.
Summary
The Orange County Employees Retirement System (OCERS) has placed Pure Alpha, the flagship hedge fund of Bridgewater Associates founded by Ray Dalio, on its watch list, a step that Chief Investment Officer reports functions as a probationary status. The Orange County pension, which had $20.8 billion in assets as of mid-year 2021, and its consultant Meketa Investment Group will continue to monitor the fund's returns before deciding whether to retain or terminate it. OCERS' position totals $175 million, just over 6% of plan assets.
CIO Molly Murphy said in a statement that the watch-list designation is not necessarily final. "We continually assess all of our investment managers and some stay in the portfolio and come off watch, while others do not and are terminated, but it is not prescribed," she said.
According to Meketa's estimate, Pure Alpha has returned an annualized 4.5% since 2005, roughly 2.5 percentage points below its benchmark of the Treasury bill yield plus 5 percentage points. Meketa found the underperformance began in 2015 and that the fund has trailed its benchmark over three-, five-, and seven-year periods through June 30, 2021. Pure Alpha returned 1.9% in the first half of 2021, 0.7 points below the benchmark. Meketa attributed the slowdown to a relatively stable macro environment with fewer large price changes across broad markets. Over OCERS' 16-year tenure, a Wall Street source sympathetic to Bridgewater said the fund delivered about 6.4% annually, with just one negative year, though the S&P 500 returned 8.8% per annum over the same span. Pure Alpha has reported a 10.4% annual net return since its 1991 inception.
The fund previously built its reputation on macro calls, including a 9.5% gain in 2008 when the S&P 500 fell by about a third and a 45% gain in 2010. It last posted a strong year in 2018, up 14.6%, and has struggled to capture the post-pandemic equity rebound. Neither Bridgewater nor Meketa commented on the matter. Bridgewater, the world's largest hedge fund firm, oversees $105 billion in hedge fund assets, so the OCERS position is a small fraction of its business.
CIO Molly Murphy said in a statement that the watch-list designation is not necessarily final. "We continually assess all of our investment managers and some stay in the portfolio and come off watch, while others do not and are terminated, but it is not prescribed," she said.
According to Meketa's estimate, Pure Alpha has returned an annualized 4.5% since 2005, roughly 2.5 percentage points below its benchmark of the Treasury bill yield plus 5 percentage points. Meketa found the underperformance began in 2015 and that the fund has trailed its benchmark over three-, five-, and seven-year periods through June 30, 2021. Pure Alpha returned 1.9% in the first half of 2021, 0.7 points below the benchmark. Meketa attributed the slowdown to a relatively stable macro environment with fewer large price changes across broad markets. Over OCERS' 16-year tenure, a Wall Street source sympathetic to Bridgewater said the fund delivered about 6.4% annually, with just one negative year, though the S&P 500 returned 8.8% per annum over the same span. Pure Alpha has reported a 10.4% annual net return since its 1991 inception.
The fund previously built its reputation on macro calls, including a 9.5% gain in 2008 when the S&P 500 fell by about a third and a 45% gain in 2010. It last posted a strong year in 2018, up 14.6%, and has struggled to capture the post-pandemic equity rebound. Neither Bridgewater nor Meketa commented on the matter. Bridgewater, the world's largest hedge fund firm, oversees $105 billion in hedge fund assets, so the OCERS position is a small fraction of its business.
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.