Page 71 - Ray Dalio - Principles

Some clients got the concepts and were excited to change
the rules; others either didn’t understand or worked for
organizations that refused to try cutting-edge things. Frankly,

we were thrilled that any of them were willing to try. For over
twenty-six years now, that new type of plane has flown exactly
as we anticipated, making money in twenty-three of these
years (having only modest losses in the other three) and
making more money in total for our clients than any other
hedge fund ever. While the investment management concepts
that underlie Pure Alpha eventually changed our industry, the

journey from conception to general acceptance took many
years of learning and grinding work by a group of dedicated
partners.

GETTING OUR KILLER SYSTEM

OUT INTO THE WORLD

Pure Alpha represented the best way we knew to actively
manage money, but we also knew that if we wanted to manage
a meaningful amount of institutional money, we had to accept

the reality that only a limited number of innovative clients
would try the approach. So while we tried to convince clients
to adopt our way, by the end of the 1990s and into the early
2000s, Pure Alpha made up only around 10 percent of our
total assets under management.

Even though we couldn’t trade stocks and commodities in
our pure bond accounts, we applied the portfolio structuring

principles we’d discovered and used with Pure Alpha to give
our bond clients higher returns at lower levels of risk. This
included trading foreign government bonds, emerging market
debt, inflation-linked bonds, corporate bonds, and the currency
exposures that came with the foreign investments. In our most
unconstrained bond portfolios, we would make about fifty
different types of bets, way more than traditional bond

managers traded. Doing so gave us a big edge and landed us at
the top of many investment performance tables year after year.