NEW YORK (Reuters) - A $70 billion portfolio managed by hedge fund titan Ray Dalio's Bridgewater Associates and widely held by many pension funds is emerging as a big loser in the recent sell-off by markets, according to two people with knowledge of the numbers.
The Bridgewater All Weather Fund is down roughly 6 percent through this month after losing 5 percent in May, the people said.
For the year, the All Weather fund is down 8 percent.
The plunge in the Bridgewater portfolio began soon after concern rose in late May that the Federal Reserve will soon begin pulling back from its easy money policies, which have included monthly purchases of $85 billion of Treasuries and agency mortgage-backed securities.
The All Weather Fund rose 14.7 percent last year, according to a year-end investor note.
The All Weather Fund is what 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 theory behind these products is that when stocks fall, bond markets will rally and vice versa.
Risk parity products are designed as a natural hedge for that outcome and they have been marketed by Wall Street banks to institutions like pensions funds in that way.
However, these types of funds, of which Bridgewater's All Weather Fund is one of the biggest, tend to perform poorly when both stock and bond prices tumble as global markets have experienced in recent weeks.
The sell-off in the bond market has been particularly fierce with the 10-year Treasury note yield up a full percentage point since its low close of 1.62 percent on May 2.
It is for this reason that one New York-based wealth manager, who did not want to be named, said he does not invest client money in these products.
"Ray Dalio and Bridgewater are very smart investors. The model - the All Weather Fund -- is beautiful long-term," said Mark Yusko, founder and chief investment officer of Morgan Creek Capital Management, a firm that advises pension funds, endowments and wealthy individuals. "It doesn't mean you can't lose money. All assets are in corrective mode right now."
Dalio, one of the hedge fund industry's best known managers, came into 2013 with a bullish view on stocks and other risky assets, according to the yearend investor letter.
"Borrowing cash to hold risky assets is as attractive as it has ever been," Dalio wrote in the 300-page plus report.
(Reporting By Katya Wachtel and Jennifer Ablan; editing by Matthew Goldstein and Kenneth Barry)
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