Robert Prince Defends "Safe Mode" Decision

By on December 7, 2009

Robert Prince, co-chief investment officer of the huge $21 billion hedge fund “Bridgewater All Weather portfolio,” justified a decision that cost investors substantial gains over the past year. That decision was to shift to a “depression era” mode late last year by reducing levered exposure to risky asset classes. Douglas Appell has written an article chronicling the unfortunate (for investors, but not for competitors) move.

The All Weather portfolio, for almost 14 years, has been the most well-known asset manager among diversified beta strategies, which are designed to leverage up exposure to higher Sharpe ratio-lower return asset classes, with the promise of equity-like returns and bond-like volatility.

Some clients grumbled that Prince and his team reduced leverage when it would have been more opportune to increase it. Prince retorts, “the risks to the system when the ‘safe’ mode decision was made were ‘just tremendous,’ and with no signs yet of private-sector credit creation that would allow the central bank to take its foot off the gas, those systemic risks ‘remain tremendous’ today.”


Pensions & Investments Online

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