A $70 billion portfolio managed by hedge fund titan Ray Dalio's Bridgewater Associates is still struggling to overcome heavy summer losses that could lead some investors to place redemption notices in the last quarter of the year, sources familiar with the matter said on Friday.
The Bridgewater All Weather Fund is down roughly 7 percent year-to-date through August, after losing 1.4 percent last month and 6.22 percent in June, according to the two people who had seen the numbers but were not authorized to speak publicly about the fund's performance.
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The performance of the All Weather fund is being closely watched this year because many state and corporate pensions invest in the portfolio. The sources familiar with the All Weather performance said investors often make decisions about when to put in a redemption notice as it gets closer to the end of the year.
The fund rose 2.5 percent in July, helping to make a modest dent in the portfolio's earlier losses.
The All Weather Fund is known in the $2.25 trillion hedge fund community as a "risk parity" product and is a popular investment option for many pension funds. The strategy behind these products is that it promises to make money in most environments.
But rising interest rates have made fixed-income securities vulnerable to price losses and net outflows. The All Weather fund invested heavily in Treasury inflation protected securities, or TIPS, which have lost 8.89 percent year-to-date, according to the Barclays Capital U.S. TIPS Index.
In fact, the All Weather fund, launched in 1996, was a leader in investing in inflation-protected bonds.
Bridgewater spokespeople did not return calls seeking comment for this story.
In a recent research note to clients, Bridgewater continued to sound positive on U.S. growth despite the rise in interest rates.
The firm said U.S. growth has been strong enough to continue to produce a healthy pace of healing in labor markets and, at the current pace, would produce a full normalization in about two years.
"In the U.S., the improvement looks self-sustaining to us, though some further moderation in growth is likely as the effects of higher rates continue to flow through."
The All Weather Fund rose 14.7 percent last year, according to a year-end investor note reviewed by Reuters.
(Reporting by Jennifer Ablan; editing by Gunna Dickson)