Bridgewater CEO David McCormick: Transition from Ray Dalio, Macro Uncertainties in Covid, and Vision for a National Innovation Policy
David McCormick is the CEO of Bridgewater Associates, the world’s largest hedge fund with over $140 billion in assets under management. David joined Bridgewater in 2009 and was President and Co-CEO before becoming CEO in 2020. Prior to Bridgewater, he was the US Treasury Under Secretary for International Affairs in the George W. Bush Administration during the 2008 global financial crisis, and he also had senior roles on the National Security Council and in the Department of Commerce. David is a graduate of the United States Military Academy, a former Army officer and a veteran of the First Gulf War, and has a Ph.D. from Princeton’s School of Public and International Affairs.
In this interview, David talks about his personal journey from the Army to the Treasury and Bridgewater; the ten-year leadership transition that he and Ray Dalio had just completed; the challenges he experienced when managing Bridgewater over the years; macro-financial topics such as Bridgewater’s “Monetary Policy 3” framework; and his vision for a “national innovation policy” allowing for more frontier civilian technology to enter the military space.
Bridgewater is a place that needs very little introduction, especially as founder Ray Dalio’s bestselling book Principles has become not only a nordstar for corporate managers, but also a household read. David tells us about Bridgewater’s distinct culture of radical transparency, critical thinking, and various other principles established by Dalio and how these principles were put to test during the transition process.
David transitioned from Co-CEO to CEO of Bridgewater in 2020, which marked the end of a long leadership transition (Ray had kicked off this “ten-year transition” back in 2010). David recalls that he had taken on various management roles in earlier years as the President of the fund, but initially did not do a very good job. Ray eventually asked him to come back as Co-CEO and later as the sole CEO, and it was a long process with many challenges.
We ask David how he plans on maintaining the firm’s distinctive culture and Principles, especially when Ray has departed. David explains that going forward, the members of Bridgewater will continue to do a lot of soul searching and find the best way to combine Ray’s wisdom with new thinking that needs to be integrated into the firm’s DNA. It will not be a static or rigid process, but rather one that is nuanced, dynamic, and collaborative.
David speaks quite frankly about the fund’s recent drawdowns and underperformance compared to the broader market. He says that Bridgewater has always bounced back stronger after brief periods of drawdowns and that these difficult moments have only made the fund stronger.
David has also personally always fared through extraordinary times. After graduating from West Point in 1987, he joined the Army’s 82nd Airborne Division before the U.S. soon entered the first Gulf War. Shortly after he joined software company FreeMarkets in 1999, the dot-com bubble burst. When he moved to Washington to join the George W. Bush administration’s Treasury Department, it was only months before the 2008 global financial crisis. This time around again, the Covid pandemic ravaged across the world right after David took over as the CEO of Bridgewater last April. David talks about how these experiences impacted his decision making process as a leader and how to deal with “radical uncertainty” and the “unknown unknown” in these crucial moments.
One of the major frameworks that Bridgewater has put out in explaining today’s economic paradigm is the idea of “Monetary Policy 3.” MP1 is interest rate cuts; MP2 is QE; and MP3 is fiscal-monetary coordination that can take on a variety of shapes or forms. Modern Monetary Theory (MMT), which has rapidly gained popularity after being quoted by AOC and Bernie Sanders, is a form of MP3. David touches on MP3 and whether the U.S. response to the Covid pandemic was a successful implementation of MP3 or even MMT.
In his recent Gilbert Lecture at Princeton, David made two arguments about military innovation today: 1) the “line between civilian technology and military technology is more blurred than ever,” and 2) the military needs to create a culture of experimentation and bring in new entrants, and create the right incentives for people to move up the risk curve. He elaborates on these ideas and proposes his vision for a “national innovation policy.”
The pandemic’s disruptions of supply chains has demonstrated the potential vulnerabilities that arise from increasing global interconnectedness. The U.S. initially suffered a logistical breakdown and saw shortages of aspirin, penicillin, and basic PPEs due to some of the initial supply chain disruptions in China. In light of the rising tension between China and the U.S., should American firms and Western countries at large reconsider their dependence and interconnectedness with China? Ray has frequently spoken about Asia being the new frontier for investments given the Western developed world now suffers from historically low interest rates and comparatively lower economic growth. Bridgewater has also recently opened new offices in China and raised new funds from local investors. Why is Bridgewater so active in China when the geopolitical risks and ideological division are at an all-time high? We ask David whether he is concerned about Bridgewater’s potential exposure to geopolitical risks.
Lastly, David explains why he believes the U.S. is now at an inflection point – what the U.S. does next will be very important for the future of America’s role in the world. What does he think this role should be? And is David more optimistic or pessimistic in the country’s ability to confront these challenges?
David McCormick
Acknowledgement
We would like to express our sincere gratitude to Thomas Quirk – Program Manager, The G. S. Beckwith Gilbert ’63 Lecture Series – for kindly connecting us with Mr. McCormick. Thomas is also the Associate Director for Principal Gifts Stewardship at Princeton University and has played an instrumental role in supporting the growth of Policy Punchline.