Bridgewater CEO warns of complacency as geopolitics shifts

By Barbara Kollmeyer

Investors should ask themselves whether things are changing and how they can prepare for that, Nir Bar Dea says

'Even at Bridgewater, we have 400 people spending day in and day out mapping cause-and-effect linkages in the world, and we still get 40% of our calls wrong.'Nir Bar Dea, chief executive officer at Bridgewater Associates

That was the head of one of the biggest hedge funds in the world discussing how difficult it is, even for his company, to get market calls and investments right.

Individual investors, Bridgewater Associates CEO Nir Bar Dea said at the Qatar Economic Forum on Wednesday, "have to acknowledge the fact that you're going to be wrong a lot, and make sure you're building a resilient portfolio, which you really didn't quite need in the previous decade but you will need in the next decade."

Investors have a "tendency to look at what we just experienced and extrapolate that forward," Bar Dea said, noting that the previous decade was a "straight flush for investors."

"When you look at the last 15 years, the stars have aligned for investors. It's been a tremendous period," he said. Stretching back to the period after the global financial crisis of 2007-09, asset prices were low, with vast liquidity, zero interest rates and zero inflation, and geopolitical cyclical conditions were deflationary, he said.

"It was just a very long run. Then we have a blip in COVID, we get a hit, but again a lot of liquidity, we get flooded again ... fiscal, monetary jubilees, and it's pretty incredible," he said.

Especially when it comes to U.S. stocks that that have performed strongly in the last decade, he said investors should ask themselves whether things are changing and how they can prepare for that.

"If we just take stock of what's happening now ... asset prices are a lot higher, interest rates are a lot higher in a way that there's a hurdle rate for investors to make decisions, the backdrop of geopolitics has changed. It went from being disinflationary to much more inflationary," he said.

For example, investors are now juggling concerns about U.S.-China tariff wars, the coming U.S. election, investments in green energy and how artificial intelligence will change the global landscape. Looking forward, "a lot looks very, very different ... and my advice to investors here is don't use the playbook for the last 10 to 15 years for the next 10 to 15 years," Bar Dea said.

"The biggest mistake that I think investors make is they develop overconfidence, and our advice to our investors is, one, stare at your portfolio hard and make sure you understand it well. And what I mean by that is, just don't assume the next decade is going to be like the last one," Bar Dea said.

Investors should then determine which environments their portfolios will perform well in and then stress-test that, asking questions such as what happens if U.S. monetary policy stays tight or inflation stays higher, or if U.S. outperformance doesn't persist.

They should measure those answers against specific portfolio goals and close those gaps by doing one of three things: shifting allocations, shifting within allocations - such as sticking with equities, but picking those stocks that perform more how the investor wants relative to their goals - or "[creating] return streams that specifically address the problems you are worried about."

Bar Dea also made a remark about U.S. inflation, Bloomberg reported. "The U.S., I believe in order to slow inflation, will need actually restrictive policy," he said. "The reality is to bring inflation down you have to slow the economy."

-Barbara Kollmeyer

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05-16-24 0846ET

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