Bridgewater Exits Dalio Era With Revamp

founders figuring out succession plans and the way forward. Among those firms, Bridgewater, whose billionaire founder Ray Dalio handed off control five months ago in a Bloomberg exclusive and the most read story on the Bloomberg Today. Bloomberg News Editor at Large and New Economy Editorial Director Eric Shatzker joining us on the major revamp of the world's largest hedge fund. He joins us in our Bloomberg Interactive Broker Studio. First

of all, great story, great reporting. This is someone you know, Well, just remind you you've had many conversations kind of put Ray Dalio in in kind of his place when it comes to the financial community and something. Ray is a hedge fund investing legend, an call master of the universe, in Wall Street terms. He built the world's largest hedge funded Bridgewater Associates and amassed more money in hedge fund strategies than anybody ever had and anybody ever has to date.

At its peak, Bridgewater had more than one hundred and fifty billion dollars under management. And one of the important things undercurrents to the story is that in the course of amassing all those assets, Bridgewater under Ray's leadership, kind of defied gravity because the conventional wisdom in hedge funds is that each strategy has a natural size cap to it. There are only so many opportunities that any one firm can harvest, so if you try to run too much money,

you're going to erode your returns. Now, this didn't this law didn't seem to apply to Bridgewater for a long time, and then in the twenty tens they had a prolonged period of underperformance and really had to take a hard look at themselves in the mirror and ask what was wrong? What's what are we not doing right? They started to take some steps to reconcile or resolve those issues while

Ray was still there a couple of years ago. But now that he's gone, the new generation of leadership has the freedom to go much further and they are and how is that going for them? Well, it's early days yet this was just announced today. In fact, some people at Bridgewater would say, thank goodness, were actually starting. There was a sense inside the firm that while Ray was still the boss and the controlling shareholder, some of these

changes were difficult to implement. I'm not sure I would quite go so far as to say he was resistant to them. But now you have younger people running the firm who have ideas of their own and who want to implement them. So it will take some time to see if this idea of capping their flagship hedge fund strategy pure Alpha will help to deliver better returns in

that strategy. What it will mean practically is the clients who want more Pure Alpha or who aren't in that strategy and want access to it may not get it, And institutional clients are going to have to be competing for that more so than they have been. That's right, There's always been a ceiling, but now the ceiling is

much lower on how much they're willing to manage. The maximum at one point was about one hundred billion dollars and it's going to be twenty to thirty percent less than that going forward, So more money into talent in AI, machine learning, expanding an age. Yeah, this is the flip side of the coin. Talk to us a little bit about these strategies and what strikes you the most in terms of what this means for going forward. And it's new CEO. As they cap the opportunity set in pure Alpha,

they're cutting some jobs. They no longer need as many people to support that strategy, and they're reallocating those resources to these new initiatives. One of those initiatives is growing the firm's international footprint in Asia in particular. Another is building out their equities business. A third is sustainability, and

a fourth, as you mentioned, is AI and machine learning. Bridgewater, like many firms in the hedge fund industry, has been experimenting with AI and machine learning for quite some time. To date, nobody has really figured out a way to master those technologies in a way in a manner let's say that truly supersedes human decision making. That's the dream that you'll be able to program a machine and the machine will be able to do will be able to

invest better than the human right. It hasn't happened yet. And what this tells you is that Bridgewater, by putting this effort underneath one of the co chief investment officers, Greg Jensen, is really getting serious about trying to reach that holy grail, let's call it. We'll find that holy grail. It feels like they're kind of investing in the ideas of that younger cohort of investors. Is that how you

would describe it. I think the younger people who are now running the firm in their thirties and forties, for the most part, recognize that this is the future and that they need to chase the future as hard as possible if they want to get there first. One of the things to keep in mind about technologies like generative AI right, or quantum computing, which is around the corner but not quite here yet, is that it might be

winner take all. If you get there first, you open up such a lead over your competition that they may never catch up. Yeah, it's kind of fascinating about, you know, Ray Dalio Bridgewater for the It's interesting Bridgewater has written about this to its clients and they call those types of technologies force multiplier technologies. We'll think about it right if they get it right, and you can think about the returns that could be potentially off of that. Hey, listen,

got about a minute left. I think about Ray Dalio, and I do think about for many years his outperformance and how well he did under with Bridgewater. But he also talked about society at large. Is that still a part of the fabric at Bridgewater. Ray cared about society.

His concern for society and his concern that we are able to get along with one another and we don't devolve into you know, partisan bickering and the potentially terrible consequences that could come out of it were unique to Ray himself his point of view, But the people who run Bridgewater now have their own ethos. What they did say what near Bardo, the new CEO said to me is for us, it's not ideologue goal. We are where

we need to be. For example, we're in China because we our clients want us to be there, and we'll be there so long as we can. But it's not about ideology. I love to and we're running out of time. But this whole idea of his contribution, what he calls a flywheel and that's an all idea of like chasing new talent, right new ideas. That's right, and it will

become this virtuous circle. So don't kill me. But it almost sounds a little Kathy woodlike, Oh, I don't think they craved that comparison warmly and a little bit okay, okay, good, Yeah. I just feel like maybe the young people are getting there. I don't know. Um. Great story again, thank you, Carol, and it is most read on the Bloomberg in the past eight hours. Eric Shatzker Editor at Large. He's editorial

director for Bloomberg New Economy, joining us in studio. Check it out at Bloomberg dot com and of course on the Bloomberg terminal. You are listening and watching Bloomberg Radio. You're listening to the Bloomberg Business Week podcast Cat just Live week days from two to five pm Easter on Bloomberg Radio, the Bloomberg Business a band you. You can also listen live to our flagship New York station, Just

Say Alexa, play Bloomberg Eleve and Dirty. You know, we've talked a lot about the one year anniversary of that Russian invasion of Ukraine, and Carol, I did not know about this until reading this story. But President Vladimir Putin he begins the war. A network used throughout Europe, including by the Ukrainian military, then faced an unprecedented cyber attack, and it's one that everyone is finally talking about. Yeah. I feel like it went from no one to everyone,

and they should be. The story is coming up in the new issue of Bloomberg BusinessWeek on newsstands tomorrow, already online at Bloomberg dot com, slash business Week, and of course on the Bloomberg Let's get to it with Bloomberg News Cyber and Emerging tech reporter Katrina Manson. She joins us via zoom in New York City, and of course you've got the editor of Bloomberg Business Week, Del Webber

right here in our Bloomberg Interactive broker's studio. So tell us about this hack in my ongoing propaganda for rto messaging. Katrina and I found ourselves in the Washington DC bureau and Katrina was like, have you heard of this company Vias? And I was like, what are you talking about? She was like a satellite company. I was like, I don't

know anything you're talking about. And it turns out that there was a hack at the beginning of the Russian invasion, and no one initially attributed that to Russia, but as the weeks passed and Western governments, you know, finally got around to pointing a finger, they pointed that figure a finger out Russia, which obviously Russia says that we're innocent. But what it really revealed was something that I thought

was worthy of further exploration. And Katrina did a great job on this, and it turns out satellites are really unsecure and that is a little frightening when you think about the amount of data that is sent there um and and so this via st hack that you read about Katrina tell us why it ended up being a much overdue wake up call for the satellite industry. When I think trapping it down was so fascinating. Reports came

out in drifts and drabs. There were other journalists who are very obsessed with this issue, who were of course covering it, but it was very hard to put together the overall picture, and some cybersecurity researchers did incredible work really trying to encourage the company to talk about this in public. When I say cybersecurity researchers, I mean hackers they have been trying to hack space for a decade plus for white hat reasons. That's classically known as for

good to share their information so other people improve. But it's a really sensitive area. And so one of the main people I spoke to for the story, Ruben Santa Marta, he's been warning since twenty fourteen that space is insecure. And he said to me that page ten and eleven of one of these very esenteric papers that he'd written actually essentially predicted exactly what happened to the Ukrainian military, which relies on commercial satellite in remote places to get

their Internet connections. That's essentially how they want to link frontline troops, to command control, to control drones, all the things that you would need to respond to a very swift or what was intended to be a very swift lightning invasion by the Russians. So the stakes were incredibly high, and it came down to a lot of researchers who've been climbing the bell for this for so many years. Another one I spoke to, called James Parville for the story.

He intercepted satellite data transmissions that's from the satellite down to in this case ships that were relying on satellite connections, and he got hold of the crew manifests passport details, credit card details. It is extraordinary how much out there in space is not encrypted and how easy it is to get hold of it. I see, And I was so hoping she was going to talk about Captain Midnight. But we'll get to that later. I mean, we have to,

we have to. I mean, I wonder if you can talk a little bit about the US intelligence on this. The US looks into it gleans that the Russians were prepared to take significant diplomatic and strategic risks, which feels like something that you could have told us before the US intelligence looked into that, Katrina. But I wonder if you can talk about how much the US knows as we stand today, and maybe the extent to which we don't know. Well, I can tell you what I know,

which is definitely not everything. But I think the US worked very quickly within about four weeks to work out that they thought it was the gru that's responsible. That's Russian military intelligence. They have alleged we done lots of hacking, according to the US in the past. And what was interesting about that was that it was coordinated with the invasion. Now, once they established that, they then spent six weeks trying

to convince the Europeans that they were right. And I think it has interesting echoes for the rest of how the US approached the Ukraine invasion, which was to flag early on to the Europeans, look, this is going to happen. We have the intel, and the Europeans, namely the French and German, said no, we don't think so. And in the case of the satellite hacked, the US actually went

above and beyond and shared additional intel. I'm told European official with the French and the Germans to try and convince them not only that this had happened, but that it was really important to blame Russia in public, and that's something countries simply don't usually do well. As you say, at the end of the story, you have a quote from a source who says it is super super repeatable. So that's that's distressing. I was going to say, the

good news is that this will never happen again. I may well be invited back, I'm sorry to say so. So walk us through what has to happen in order for this to not happen again, I think at the most extreme, and some groups in the US are calling to make space systems um a critical infrastructure sector. I mean, that is terrible job and I'm sorry to even introduce it, but it's essentially to say, give this sector way more

UM prominence, government support, and essentially potentially regulation. That's something sallite companies mostly don't want, and I think the US government isn't going to do that. We've got quite Congress to step in. It's part of a five year review. I mean, it's just going to get sucked into all sorts of bog down into stuff. But the easiest thing to do is to set standards. And that's actually what the source who said this is super super repeatable it's doing.

He wants international countries to agree, well, how do we run our satellite systems? What do we do with the satellite up in space? How do we control the link, what goes into the ground network. And as you have more and more satellites going up into space, I mean, the numbers are can I think, what do these numbers look like? Yeah, I mean it's from about five thousand active satellites in orbit at the moment to within the next seven years, but my end predictions are one hundred thousand.

That's because satellites are getting smaller, launch is getting easier. Everyone's into this new low or low Earth orbit, which is much closer, so easier to get to. The satellite that got hacked was a geostationary satellite way higher, so you're going to see way more satellites in which means that if one gets hacked, there are others you can rely on. But I think what's key is establishing standards and working out what goes into that gloom and protecting

ground networks. I mean, that's actually what the entry was in this hack. And there are really convoluted chains between the different operators of a satellite network, and it seems that the ball got dropped in that case there was a third party operator, right, that's whose speech then it went all the way to buy some It's our new kind of warfare, right, cyber warfare, And like you think about nuclear deterrance, like how we create that kind of

deterrence when it comes to global satellites. Incredible story. Katrina Manson, cyber and Emerging tech reporter at Bloomberg News via zoom Joe Weber editor of Bloomberg BusinessWeek. This story in the new issue at Bloomberg BusinessWeek magazine. This is Bloomberg business Week Inside, from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news. The Bloomberg Business Week Podcast with Carol mesre

and Tim Stenebec from Bloomberg Radio. Nowdy, we're going to get to another story that is among the most read on the Bloomberg and it's certainly something we've touched on before, and that is worrisome when it comes to looking at the consumer debt picture here in the United States. Yeah, Carol, we're talking about car debt and it is a huge problem piling up for a lot of consumers across the country.

So here to tell us more about it and her reporting on this issue is Bloomberg News Consumer finance reporter Paige Smith from our Bloomberg ninety nine one studio in DC page. Thank you so much for being back with us. What's going on here with this just exponential car debt. Thanks for having me, folks. Nice to be back. So it is sort of a number of factors, I mean, when you consider there were sort of a lull during

the pandemic. I mean, I don't know about you, but I heard of friends turning in their subarus and getting more back than they'd paid for them. But yes, that I'm not is gone now. And basically, you know, negative equity or essentially owing you know, the debt exceeding the value of your vehicle is not an uncommon occurrence. It's

quite common in fact. But you know, we spoke with dealers who are seeing consumers come onto their lots with ten thousand dollars in negative equity or even more for that matter, So gone or the days when you could get more for your vehicle than you paid for it, and you know, factor in it. There are a number of other factors like high interest rates to consider now.

So this is just it's a tough time for consumers, and for folks who have auto loans in particular, it's a really tough time, partially because of those high interest rates, but also in the story you mentioned that the initial cost of the car is already too high for a lot of people exactly, and when you think about it, so you have, you know, a car that might be fifty thousand or sixty thousand dollars and then you have in January, for example, the new car interest rate was

six point nine percent and you have a loan for maybe seven years. That's a lot that you're paying. At the end of the day, we have you know, a number of consumers are paying more than a thousand dollars a month for their car. If you think about it, that's more than some people pay for rent every month. So it's just it's really expensive about their folks, you know what's really it's like heartbreaking. But you talk about negative equity, it's never good. But it's somewhat unusual or

not among car owners. Right we see this. What's different right now page right is it just kind of a size and scope that we're seeing exactly. I mean, you have folks who were kind of you know, maybe wanting to buy a car. And if you have a car that lasted you through the pandemic, but now you're going to look for a new car. It's it's extremely expensive. And yes, the terms or longer interest rates are higher.

Now you're seeing, you know, severely the rate of severely delinquent loans hit the highest level since two thousand and six. I mean, it's just a lot to think about as a consumer, and it's it's overall really expensive, and they're also struggling to get any type of refinancing right exactly exactly, I would say that, you know, folks, we've already seen lenders kind of tighten their standards. So you know, if you want to go out and get any sort of an auto loan, it might be harder for you to

do so these days, you know. I wonder, you know makes me think about different things that have come before regulators in the past, whether it's student loans and the amount of death there and how that has become problematic for so many to manage, especially as we look right now right Supreme Court considering up the President Biden's plans to forgive a lot of debt. So I do wonder can you can you tell us something more about how many of Americans are potentially in trouble or underwater at

this point? Are we talking about forty percent of car loans? Do we? I'm just curiously we have any idea a little bit more into terms of how big a problem is could potentially be. I don't have that data right off the top of my head, but I know that almost sixteen percent of of some of almost sixteen percent of consumers surveyed in a recent poll, we're paying more than a thousand dollars a month on their on their

car payments. And I think that for the average for the number of trade ins that had negative equity associated with them, it was reaching like an average of fifty five hundred dollars. So you know, it's like rolling that some from one vehicle over into the next. And then we're hearing about folks who might even roll that dead into a third vehicle. So to speak to regulators too, you hinted at that sin is definitely on the radar

of the Consumer Fight Financial Protection Bureau. They're collecting data on this and they're going to be watching closely, and so are we page that piece for the CFPB is kind of what I was thinking about because earlier today, I know you're on the clothes with Scarlett, and I was telling her that I see these hot takes on social media all the time of people saying that the car delinquencies are going to be the new housing crisis, and she was saying to me, well, usually you can

kind of bet on people repaying their car payment more consistently than their house payment, because you need the car to get to work. And I know that some of your sources said that as well, that you know, if even if your car is more expensive than a house, to keep your job, which is your source of income, you've got to keep that car at play, definitely. And you know, I'm based in DC, you folks her in New York. It's it's easier for us to get on

jump on a train, or jump on a bus. The vast majority of a marror kids don't have that opportunity. A car is extremely important to get from point A to point B, to buy groceries, to pick up your kids. And on top of that, this is you know, was a really awful saying. But during the you know, during the the financial crisis in two thousand and eight, there were even some folks saying that they could live in

their car. And it's it's just these are sort of the struggles the consumers are facing and considering when these payments are getting so high. There's also like this whole idea like if the debt comes undone, you know, who's who's responsible for it? Right on the financial side of things. Having said that, the lenders of auto loans, those companies that actually do the lending, what are they doing to

help consumers? Because I think you guys include in the story, you include about how they're extending some of the life of auto loans. So just talk to us little bit

about that and what they're doing. Yeah, So it's sort of a double edged sword, I would say, because certainly the auto loans are being extended, which means that as a consumer, your monthly payment might not be as expensive, but at the end of the day, you know, when you pay off that car, you will have paid much more than if you had, you know, showed up at that dealership with a check in your hand, or had paid just straight cash. So that's why I say it's

sort of a double edged sword. Your monthly payment might be less, but in the end you are still inevitably paying more. I know, the longer duration right when they that's tough, that's tough. It just it reminds me so much of the student loan conversation. Right now, Paige, your headline is car debt piling up, with more buyers ten thousand dollars underwater on loans. I know it's hard to put a number on it. But six months from now, a year from now, how big do we know that

number could get? And how big is the shoe going to be that drops on this? Gosh, I am scared to put a sort of number on that right now, but I will just reiterate that this is definitely on the radar of auto industry folks. Dealers are watching this really closely. The CFPB is watching this really closely. You know, like I said, the average trade in for trade ins with negative equity, that average is around fifty five hundred

right now. But as I said, the dealers we're seeing, you know, folks come onto their lots with as much as ten thousand dollars negative equity, So we could see it expand hopefully it maybe doesn't or maybe not hopefully, but yeah, we are. It's sort of a wait and

see game, I would. I would say at this point, yeah, and you do wonder like if you need a car, you need a car, or can you put it or can you put it off and say I'm just going to live with the older car or whatever and just deal with it and just kind of hopefully write it out. I'm blown away by the average new car interest rate six point nine percent in January four point three percent year earlier. I think the cars that I've bought over the last ten twenty years, it was like no no

interest rate. Yeah, kind of giving you the car away. It felt like, Paige, thank you so much, really appreciate it. Page Smith, consumer finance reporter at Bloomberg News. There in our nine to nine one studio in Washington to see. But it's just another reminder, Mattie that that low rate environment that was the unusual era, that's not normal. And so this is that reset we're seeing as we come off of that, you know, very inexpensive, cheap, no cost

money that was with us for so long. Yeah, it feels like people really got used to that idea of every two years, I can get a new car, and now that is just absolutely not the case anymore for a lot of folks. Right, you're getting hit on both ends. Right, the cost of cars have gone up and then rates and the rates are higher as well. You're listening to the Bloomberg Business Week podcast. Catch us live weekdays from two to five pm Easter on Bloomberg Radio. The Bloomberg

Business a band you too. You can also listen live to our flagship New York station. Just say Alexa play Bloomberg eleven, Dirty broca A journal. Yeah, but you let me drive? No, no, no no, no, honey, please, I'll do the riding gravels, mate, I want to drive. It's good question. This is the drive to the globe. Don comul thing Well Brier j down on Bloomberg Radio. All right, folks, just about seventeen minutes left in today's trading session, first

trading session in the month of March. Stocks bouncing around here. But we've been talking about it, Mattie all day. Really key. We got it early this morning. We had that ten year hitting four percent. So watching that treasury trade, it's really critical to watch that, and we are going to get to that and all of the macro headwinds facing us with Leo Kelly, founder and CEO at Verden's Capital Advisors,

back with us in our Bloomberg Interactive Broker's studio. Leo, great to meet you for the first time and great to have you here with us. What's what's the vibe right now? Are you on a vibe session thought? Are you on a soft landing thought? What are you thinking? Not on a soft landing thought? I think the market has I'm on an unrealistic expectations vibe. I think what we're seeing in the marketplace is there's a lot of

wishful thinking. There's there's folks that just wanted to go back to the way it was right, And that's natural with investors. They just wanted to be good again, and they close their eyes and they hope and pray. Do you tell them that markets don't always go up, they don't always make money in the market, and you have to define the market right. Everybody wants the growth market

to return, and they want low interest rates. I think people have to get their head around the fact that we're in the midst of a secular change, a multidecade change that is going to change the markets, and so I think inflation is higher for longer than people expect interest rates will be going up. By the way, the last secular interest rate move was forty years. The one before that forty years. These are not short in nature. So I think we have to start rethinking how we

look at markets. What's the reason for this thought for you in terms of what happens with inflation staying higher for longer? Yeah, that one's easy. So in the last ten fifteen years, probably since I've been coming on the show, the federal reserves bounce. She It's gone from four hundred billion eight trillion. We spent two trillion in fiscal spending in the financial crisis. We spent five trillion in COVID. We grew M two money supply forty percent in two years.

There's just so much money. And by the way, that's just the US. Every other country in the world did it alongside of us. So there's just so much capital in the system that fundamentally, I just don't see how people think inflations are going to go back to two. It's gonna be a low interest rate environment. We start to reduce money supply, and everybody's excited that m to flatten this year, right, We're not. We're not even going

back down yet. One thing I want to ask you is is also the reasons inflation will stay higher for longer or maybe it's just a new higher level forever because things are changing in terms of demographics, aging populations. We're talking about the regulatory environment as we moved towards a greener world, you know, the pushback on globalization. We had a guests and we've had several guests over the last few weeks, you know, just talking about Yeah, things

are changing. We talked about with their Mark German about Apple, you know, suppliers they're moving out of China. There are some really dramatic shifts also going out beyond the amount of money that's been slashing around in the global economy one percent, so thematically one of the things that we're talking about, and it's good news for the recovery of economy. On the back side of all of this is not just not just rebuilding the supply chain, but reimagining the

supply chain. Right, There's going to be a lot of economic activity around that. But again, the deglobalization is deflationary. I think the question should be asking yourself, is the anomaly that inflation is going to be higher going forward? Or did we just have the anomaly really right? I think the anomaly was below average inflation, below average volatility. A FED who had a third mandate of protecting asset prices at all costs. That's not how it's been historically.

I think we are leaving a moment, not going into a moment. Agreed. Agreed that the low rate environment, the zero the negative rates that folks was abnormal. We had not historically what we've seen. We had eighteen trillion dollars of negative yielding debt at its peak. Yeah, today we have zero. I guess I wonder about unbelievable. Unbelievable, it's crazy. Yeah,

it's crazy. But I wonder about the stimulus piece. You were talking about the amount of money spent during COVID, But that was two years ago when Biden had this stimulus package and people got that extra cash in the bank. Why aren't we feeling the consumer or pain a little bit more right now and seeing spending drop a little bit more. Yeah, it's there's a couple of reasons. One,

some of this fiscal is still in the system. So, for example, the student debt relief is just now getting to the Supreme Court, and the deferral payments are gonna hit now, and so that pain won't be felt until probably this summer or this fall. So there's a lot of deferral of a lot of these programs. We also have to look at the job market. The job market's very tight. There's a mismatch of skill versus job opening. There's more openings than there are people looking for work.

And so I think if there is a good side, there is a good side. And one of the positives of what's happening right now is corporate America for the first time as long as I can remember, came out of this and they were smart about it. Their balance sheets are in better position, banks aren't overleveraged. The consumer

is still reasonably strong. Although credit card debts rising right delinquencies are starting rises is a normal stuff in economic tough times, but they're stronger than they've ever been at this moment. Okay, So, so there's some underlying strength. However, the FED has more work to do, and the FED

will get what it wants. It always does. Well, what's interesting and having to that point, you know, we had a crypto collapse, we have had some other things kind of pick away if you will, And yet here we are and the system is working, and the markets are working, and we've seen liquidity. Having said that, though, just to put it to end, because we only have about thirty seconds, you are in a large cash position right now. Yes,

how large? Can you give us a little skyes well, so for every client is different, but think about it this way. We're about three to four times are normal cash holding. It's nice that cash is no longer a cement blockchain to our ankle. You know, in the water, we're actually getting a yield, so it's helping us. But I think people have to be aware volatility is back.

It's going to be part of the game, and so having cash around on a regular basis is a good thing so that you can take advantage when these Vottle moments, pa, because you will put it to work at some point. We will put it to work when the valuations are attractive. All right, gotta run, so good to have you in studio. Great to be here. Thanks for having me. Appreciate it, Love it. Leo Kelly, founder and CEO Vernon's Capital Advisers.

Here on our Bloomberg Interact and Broker studio. This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcast. Listen live each weekday starting at two pm Eastern on Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal