New York (HedgeCo.net) – As if taking his worst monthly loss in two years wasn’t bad enough, now Ray Dalio is having to defend his risk-parity strategy from other hedge fund managers. Dalio’s Bridgewater Associates and their All Weather Fund lost 4.2% in August and that left the fund down almost 5% on the year. Despite the fund not performing as well as investors had hoped, the fund has still experienced inflows in 2015. According to Parag Shah, Senior Management Associate at Bridgewater Associates, “The strategy has had net inflows this year, based on the continued adoption of the balanced asset allocation approach by institutional investors.”

As if that weren’t enough to put Dalio in a foul mood, the risk-parity strategy has come under fire lately with some other hedge fund managers blaming the strategy for creating more volatility in the market. The most notable critic of the strategy has been Leon Cooperman of Omega Advisors who blames systematic trading for the poor performance by the overall market in August.

Another firm that was critical of the strategy was AllianceBernstein. In a recent CNBC article, a report from AllianceBernstein was quoted as stating, “Should correlations turn positive, with stocks and bonds declining at the same time, the risk contribution of each one would rise. Managers would then have to sell both to maintain their risk targets. In other words, selling begets selling.”

Of course Dalio disagrees with the thoughts of Omega and AllianceBernstein, arguing that the opposite is true, that risk-parity strategies act as a market stabilizer in that they are typically buying assets that have fallen in price in order to maintain balance in the portfolio.

Rick Pendergraft
Research Analyst
HedgeCoVest