How much does one year’s performance matter?

Hall of fame athletes in every sport have bad seasons here and there, and so do legendary hedge fund managers.

Fortune Magazine put’s Ray Dalio’s tough 2012 in perspective while noting that the firm rakes in about $2 billion in fees per year while managing its $140 billion in AUM:

Dalio had a lousy 2012. By some reports, he was down for most of the year. Blog ZeroHedge appears to have a copy of Bridgewater’s most recent client letter, which details how it did in 2012. Dalio’s flagship hedge fund, Pure Alpha, ended the year up just 0.8%. That was much worse than the market in 2012. Stocks, as measured by the S&P 500, were up 13%. Bonds were up just over 4%. Even the average mutual fund manager, who gets paid far less than Dalio, was up 0.9% in the fourth quarter alone, just slightly better than Bridgewater did all year. For the full year, stock mutual fund managers were up 14%, handily beating Dalio.

Of course, every investor has off years. And Dalio is certainly entitled to one. Even with last year’s flub, he still has one of the best track records of any investor. Pure Alpha has been up an average of 14% a year since 1991. Fortune, back in 2009, was one of the first major publications to profile Dalio and his success. So you could almost shrug off the $2 billion for an off year, I guess. (In good years, Dalio’s company gets much, much more. In 2011, when his flagship fund was up 20%, his firm took in around $6 billion in fees.)

It is doubtful that many pension funds and institutional investment managers will cut off the flow of funds to Bridgewater because of any 12-month period. Putting up flat performance is not the same as blowing up and last year was a difficult one to get right given the political and economic risks we managed to skate past.

How much does one year’s performance matter? Not a great deal in the long-term so long as it’s not catastrophic. You can’t come back from down 50% but you can certainly come back from flat.

Stephen Gandel examines whether or not 2012’s miss is indicative of performance problems to come, head over below for the whole story…


Why the world’s biggest hedge fund missed big in 2012 (Fortune)


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