A California county's $21 billion pension is considering whether to drop Ray Dalio's hedge fund after it underperformed for most of the past 16 years.
The Orange County Employees Retirement System's investment in Bridgewater Associates's Pure Alpha fund has returned an annualized 4.5% since 2005, about 2.5 percentage points less than its benchmark, according to a memo seen by Bloomberg from Meketa Investment Group, the pension fund's consultant. The strategy has topped OCERS's target only once in the past five years and has trailed on a seven- and 10-year time horizon.
Molly Murphy, the pension plan's chief investment officer, recommended placing Bridgewater Pure Alpha on the pension's watchlist. A group of Meketa consultants concurred, adding that they would "evaluate potential replacements if needed," according to the Aug. 25 memo.
While the $175 million that Bridgewater oversees for OCERS is a fraction of the roughly $105 billion it manages in hedge funds, Meketa's recommendation to put the longtime stake on watch could cause other clients to exit. Meketa is one of the larger investment consultants, with $1.6 trillion under advisory.
"Typically, if a consulting firm recommends putting a money manager on a watch list for one client, there's a good chance it will do so with its other clients, too," said Brad Alford, head of Alpha Capital Management in Atlanta, which performs consultant and outsourced CIO searches for institutions. "This could spell trouble for Bridgewater."
A spokeswoman for Westport, Connecticut-based Bridgewater declined to comment. Meketa's consultants didn't reply to emails seeking further comment.
Bridgewater has come under scrutiny from Meketa consultants before. In January 2019, the firm was jettisoned by the $3.5 billion San Joaquin County Employees' Retirement Association, Stockton, Calif., which cited high fees and low returns for the Pure Alpha II hedge fund. The plan's consultant, Pension Consulting Alliance, first recommended putting the $81 million investment with Bridgewater under review in November 2017.
Pension Consulting Alliance was in the process of merging with Meketa at the time, and its founder, Allan Emkin, is now a consultant for Orange County.
Being on watch with OCERS may not end with the pension fund dumping Bridgewater. Meketa's consultants noted in last week's memo that many other macro funds have also struggled in recent years because of low volatility in global markets. Bridgewater has recently "attempted to improve the strategy's ability to consistently meet their risk and return objectives by making various enhancements," they wrote.
Bridgewater's Pure Alpha represents almost 10% of OCERS's risk mitigation asset class and 43% of its global macro sub-component, according to the memo.
