With $2.9 billion in assets, the San Joaquin County pension fund is a small-fry retirement plan. By contrast, Bridgewater Associates is a colossus, the world's largest hedge fund with $80 billion.
That hasn't stopped the northern California fund from taking Ray Dalio's firm to task for disappointing returns and high fees. After reviewing the investment for more than a year, the county decided this month to pull its entire $81 million from Bridgewater's Pure Alpha II fund. The move came even after it gained 14.6% last year.
The decision underscores the mostly mediocre performance of Bridgewater's fund since 2012, and the increased frustration fund clients face as their managers fail to make money for them, even as they enrich themselves. While just a small investment, it could presage more redemptions from the macro fund.
San Joaquin's consultant, Pension Consulting Alliance, first recommended putting Bridgewater under review in November 2017. At the time, the Pure Alpha II macro fund had posted annualized returns before fees of just 6.9% for the five years ended Sept. 30, 2017, according to a report on the pension fund's website.
After paying a fixed fee of 3.69%, the pension fund ended up with a 3.1% annualized return, meaning that Bridgewater took more than half of the money it made for the county fund in those years.
Even with this year's strong performance, Bridgewater made just 4.1% annualized net of fees for the pension fund in the five years ended November 2018, trailing its 5% target for that investment.
San Joaquin County lies about 80 miles east of San Francisco in California's Central Valley (and is the home of the fictional outlaw motorcycle club "Sons of Anarchy"). The pension fund covers more than 13,000 current and retired county employees, including law enforcement personnel, court officers and public cemetery workers.
The county's Pure Alpha investment is minuscule for Bridgewater. It amounted to less than 0.1% of what Bridgewater manages in its hedge fund strategy. Yet Dalio's team fought to save the account.
Bridgewater crafted a three-page letter — not including the appendix — to defend itself and the fund's track record and fees.
In the letter dated January 2018 and posted on San Joaquin's website, Bridgewater warned it was "critical to look beyond three- or five-year performance to the underlying quality and consistency of the investment process and what to expect from it over full market cycles." It noted that the investment had returned an annualized 10.4% after fees since the pension fund's initial investment in 2006.
Bridgewater, which manages a total of $160 billion, also stood by its fees, saying, "Pure Alpha has shown to be a good and diversifying return stream over the long term. Those characteristics are valuable and hard-to-find additions to any portfolio, which is the reason Pure Alpha is priced as it is."
The larger risk for Westport, Conn.-based Bridgewater is that other Pension Consulting Alliance clients follow San Joaquin out the door.
"Typically, if a consulting firm raises concerns about a money manager with one of its clients, there's a good chance it will do so with its other clients," said Brad Alford, head of Alpha Capital Management in Atlanta, which performs consultant and outsourced CIO searches and reviews for institutions.
Pension Consulting Alliance, which is in the process of merging with Meketa Investment Group, currently advises clients that collectively oversee more than $1.4 trillion.
San Joaquin will continue to invest $186 million in Bridgewater's cheaper All Weather product, a so-called risk parity fund.
Bridgewater declined further comment, while executives at San Joaquin and Pension Consulting Alliance didn't return calls seeking a comment.