The Soul of a Hedge Fund ‘Machine’

How do you build the world’s largest hedge fund? Bridgewater Associates founder Ray Dalio says he did it by creating a culture of “radical truth and radical transparency.” Mr. Dalio’s perhaps radical belief is that “everything is a machine”—including organizations and even the individual people within them. At his firm’s Westport, Conn., headquarters, we are discussing the human machines at Bridgewater and the equally fascinating machine known as the U.S. economy.

As for the people at his firm, the idea is to encourage everyone to accept unvarnished criticism as a treasured opportunity to learn and to solve problems. This is intended to allow constant refinement of business processes—also known as machines within the firm—from how Bridgewater buys office furniture to how it evaluates the world oil market.

But human machines don’t always welcome complete candor. And at Bridgewater they have to get used to internal software that conducts a non-stop evaluation of their performance based on daily entries from colleagues and even rates their credibility on particular issues. This doesn’t mean the software makes all decisions. When the system recently reported that the company’s head receptionist was underperforming, executives decided that it was a case of the software not being calibrated to effectively measure her work.

If an employee is willing to accept this unique culture, the company promises a rigorous search for the truth with a minimum of politics and subjective decision-making. Mr. Dalio says that anybody in the company can get up in front of a crowd and say that something doesn’t make sense. At other firms, he says, “most people keep that to themselves.” But at Bridgewater “you have a right and an obligation to say I think this is terrible and explore whether or not that’s true.” He adds that there’s no reason it should not happen at other organizations but that it doesn’t happen “because of that emotional ego barrier.”

For most new Bridgewater employees, “it’s a little bit like entering the Navy SEALs,” says Mr. Dalio.

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