We got hold of Ray Dalio's note on China to Bridgewater Associates' clients, and it's way worse than everyone first thought. Bridgewater is the world's largest hedge fund, and it is advising its investors to get the heck out of China because “There are now no safe places to invest.”

This is the context, per Dalio: "because the forces on debt are coming from debt restructurings, economic restructurings, and real estate and stock market bubbles bursting all at the same time, we are now seeing mutually reinforcing negative forces on growth.” He estimates that those negative forces may wipe between 1.8% and 4% off China's GDP growth. (Given that some people believe that China's real GDP growth is already as low as 5%, that would be catastrophic.)

Here are the highlights:

1: Chinese households lost more money than anyone in recent memory.

Retail speculators lost the equivalent of about 1.3% of the country's GDP gambling on stock prices going up. The market went down — and hard — losing about 22% of its value in a month.

They lost more than their American counterparts did during the the tech and finance meltdowns of 2000 and 2008. COMBINED.

2. The dumb money was really dumb.

67% of retail investors had less than a high school education and were borrowing money to trade.

3. Big companies also got caught up in the bubble. 

According to the note, people who should have known better were also taking losses. Dalio says: "We did not properly anticipate the rate of acceleration in the bubble and the rate of unraveling, or realize that the speculation in the markets was so big by established corporate entities as well as the naive speculators."

4. Economic growth is usually terrible after an asset bubble pops

China is targeting 7% GDP growth but very few people believe they can hit that. Dalio just added his voice. The psychological effects of people losing money on the stock market can quickly translate into lower growth and consumer spending.

Dalio said: "We believe the that the stock market was in a bubble that burst, and the fact that this is coming on top of both the debt bubble bursting and the economy transitioning growth from sectors that cannot sustain their growth rates to other sectors is more reason for concern."

5. The Chinese government is trying too hard to prop up the market

The Bridgewater note estimates the Chinese government has spent RMB 380 billion propping up stocks, and has a total war chest of RMB 3.5 trillion at its disposal. While this helps things in the short term, in the medium and longer term it can hurt credibility among investors.

Here's Dalio summing it up: "History has shown that smart investors tend to sell when the government is artificially supporting prices and buy when they are liquidating positions."

And concluding: "I believe that China's policy makers have both considerable resources and skills and the willingness to manage it well, though the new development makes me less confident it can be managed without a painful economic slowdown along the way."

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Ray Dalio, founder of the $160 billion hedge fund behemoth Bridgewater Associates, thinks the Federal Reserve will do another round of quantitative easing.

Wall Street had expected the Fed to raise rates at its September 17 Federal Open Market Committee meeting, but some now expect it to wait until December, given the wild market moves of the past few days.

Dalio, however, thinks the Fed will head in a different direction altogether.

On Monday, he sent a note to clients titled "The Dangerous Long Bias and the End of the Supercycle and Why We Believe That the Next Big Fed Move Will Be to Ease (Via QE) Rather Than to Tighten."

It might seem like a bold call, but given what has happened in global equities in the past week, anything seems possible.

Business Insider obtained a copy of the email and has reached out to Bridgewater for comment.

Here is Dalio, with the last four paragraphs here being key:

As you know, the Fed and our templates for how the economic machine works are quite different so our views about what is happening and what should be done are quite different.

To us the economy works like a perpetual motion machine in which short-term interest rates are kept below the returns of other asset classes and the returns of other asset classes are more volatile (because they have longer duration) than cash. That relationship exists because a) central banks want interest rates to be lower than the returns that those who are borrowing to invest can generate from that borrowing in order to make their activities profitable and b) longer-term assets have more duration that makes them more volatile than cash, which is perceived as risk, and investors will demand higher returns for riskier assets.

Given that, let's now imagine how the machine works to affect debt, asset prices, and economic activity.

Because short-term interest rates are normally below the rates of return of longer-term assets, you'd expect people to borrow at the short-term interest rate and buy long-term assets to profit from the spread. That is what they do. These long-term assets might be businesses, the assets that make these businesses work well, equities, etc. People also borrow for consumption. Borrowing to buy is tempting because, over the short term, one can have more without a penalty and, because of the borrowing and buying, the assets bought tend to go up, which rewards the leveraged borrower. That fuels asset price appreciation and most economic activity. It also leads to the building of leveraged long positions.

Of course, if short-term interest rates were always lower than the returns of other asset classes (i.e., the spreads were always positive), everyone would run out and borrow cash and own higher returning assets to the maximum degree possible. So there are occasional "bad" periods when that is not the case, at which time both people with leveraged long positions and the economy do badly. Central banks typically determine when these bad periods occur, just as they determine when the good periods occur, by affecting the spreads. Typically they narrow the spreads (by raising interest rates) when the growth in demand is growing faster than the growth in capacity to satisfy it and the amount of unused capacity (e.g., the GDP gap) is tight (which they do to curtail inflation), and they widen the spreads when the opposite configuration exists, which causes cycles. That's what the Fed is now thinking of doing — i.e., raising interest rates based on how central banks classically manage the classic cycle. In our opinion, that is because they are paying too much attention to that cycle and not enough attention to secular forces.

As a result of these short-term (typically 5 to 8 year) expansions punctuated by years of less contraction, this leveraged long bias, along with asset prices and economic activity, increases in several steps forward for each step backwards. We call each step forward the expansion phase of each short-term debt cycle (or the expansion phase of each business cycle) and we call each step back the contraction phase of each short-term debt cycle (or the recession phase of the business cycle). In other words, because there are a few steps forward for every one step back, a long-term debt cycle results. Debts rise relative to incomes until they can't rise any more.

Interest rate declines help to extend the process because lower interest rates a) cause asset prices to rise because they lower the discount rate that future cash flows are discounted at, thus raising the present value of these assets, b) make it more affordable to borrow, and c) reduce the interest costs of servicing debt. For example, since 1981, every cyclical peak and every cyclical low in interest rates was lower than the one before it until short-term interest rates hit 0%, at which time credit growth couldn't be increased by lowering interest rates so central banks printed money and bought bonds, leading the sellers of those bonds to use the cash they received to buy assets that had higher expected returns, which drove those asset prices up and drove their expected returns down to levels that left the spreads relatively low.

That's where we find ourselves now — i.e., interest rates around the world are at or near 0%, spreads are relatively narrow (because asset prices have been pushed up) and debt levels are high. As a result, the ability of central banks to ease is limited, at a time when the risks are more on the downside than the upside and most people have a dangerous long bias. Said differently, the risks of the world being at or near the end of its long-term debt cycle are significant.

That is what we are most focused on. We believe that is more important than the cyclical influences that the Fed is apparently paying more attention to.

While we don't know if we have just passed the key turning point, we think that it should now be apparent that the risks of deflationary contractions are increasing relative to the risks of inflationary expansion because of these secular forces. These long-term debt cycle forces are clearly having big effects on China, oil producers, and emerging countries which are overly indebted in dollars and holding a huge amount of dollar assets — at the same time as the world is holding large leveraged long positions.

While, in our opinion, the Fed has over-emphasized the importance of the "cyclical" (i.e., the short-term debt/business cycle) and underweighted the importance of the "secular" (i.e., the long-term debt/supercycle), they will react to what happens. Our risk is that they could be so committed to their highly advertised tightening path that it will be difficult for them to change to a significantly easier path if that should be required.

Dalio added this update to the end of the letter:

To be clear, we are not saying that we don't believe that there will be a tightening before there is an easing. We are saying that we believe that there will be a big easing before a big tightening.  We don't consider a 25-50 basis point tightening to be a big tightening. Rather, it would be tied with the smallest tightening ever. As shown in the table below, the average tightening over the last century has been 4.4%, and the smallest was in 1936, 0.5%—  when the US was last going through a deleveraging phase of the long term debt cycle. The smallest tightening since WWII was 2.8% (from 1954 to 1957).  To be clear, while we might see a tiny tightening akin to what was experienced in 1936, we doubt that we will see anything much larger before we see a major easing via QE.  By the way, note that since 1980 every cyclical low in interest rates and every cyclical peak was lower than the one before it until interest rates hit 0%, when QE needed to be used instead. That is because lower interest rates were required to bring about each new re-leveraging and pick-up in growth and because secular disinflationary forces have been so strong (until printing money needed to be used instead). We believe those secular forces remain in place and that that pattern will persist.

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It's no secret that investing magnate Ray Dalio is a big proponent of meditation — after all, he once said it made him feel like a "ninja in a fight."

But you've probably never seen him chatting about it with critically acclaimed film director Martin Scorcese, who has been practicing Transcendental Meditation since 2008. 

The two legends spoke with the executive director of the David Lynch Foundation, Bob Roth, during a private fundraising event back in January, about how transcendental meditation keeps them grounded in their respective fast-paced industries.

"I meditate 20 minutes a day unless I've got a busy day," said the founder of $169 billion Bridewater Associates, Dalio. "Then I meditate 40 minutes."

"I started in 1968 or 69', and it changed my life. I was a very ordinary — sub-ordinary student," Dalio said. At the time, he was studying at Long Island University. "It brought me a clarity, it made me independent, it made me free flowing, it just gave me lots of gifts."

Now Dalio, worth about $15 billion, runs the largest hedge fund in the world.

Scorcese, who is known for many films including the 2013 black comedy "The Wolf of Wall Street," said he practiced transcendental meditation daily — twice a day if possible.

It helped him through the harrowing production of his first 3-D picture, the 2011 children's film, "Hugo." 

"In the morning I would get up 45 minutes earlier to do meditiation before I was able to face that set, with children actors that can only work for like for a minute, a dog that wasn't listening, and Sacha Baron Cohen was improvising everything, and everything in 3-D — and over schedule and over budget!" Scorcese said. "So, God, there's only one thing you can do, is calm it down. Get into it, and deal with the realities."

When he had an unsolvable problem, Scorcese would sit down and meditate.

"And somehow something came out," Scorcese said. "And I was like goddamnit."

"That's it," said Dalio. "That's exactly what it's like."

Check out a clip of the interview here.

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In 2010, a company's returns exceeded the combined profits of Google, eBay, Yahoo, and Amazon.

It wasn't a tech giant; it was Bridgewater, a hedge fund that has been recognized for making more money for clients than any hedge fund in the history of the industry. Bridgewater anticipated the financial crisis, warning clients in 2007 about the impending crash.

In the investment world, you can only make money if you think differently from everyone else. Bridgewater has prevented groupthink by inviting dissenting opinions from every employee in the company.

When employees share independent viewpoints instead of conforming to the majority, there's a much higher chance that Bridgewater will make investment decisions no one else has considered and recognize financial trends no one else has discerned.

That makes it possible to be right when the rest of the market is wrong. As Berkeley psychologist Charlan Nemeth shows, minority opinions improve decisions even when they are wrong.

Bridgewater's billionaire founder, Ray Dalio, has been called the Steve Jobs of investing. He believes that "no one has the right to hold a critical opinion without speaking up about it." To make sure that people share those critical opinions, Dalio goes to unusual lengths.

Here's an email that Jim, a client adviser, sent to Dalio after a meeting with an important potential client: 

Ray — you deserve a "D‑" for your performance today . . . you rambled for 50 minutes . . . It was obvious to all of us that you did not prepare at all because there is no way you could have and been that disorganized at the outset if you had prepared. We told you this prospect has been identified as a "must-win". . . today was really bad . . . we can't let this happen again. 

At a typical company, sending an email that critical of a boss would be career suicide. But instead of reacting defensively, Dalio responded by asking others who attended the meeting to give him honest feedback and grade him on a scale from A to F. Then, instead of hiding Dalio's shortcomings or attacking the author of the note, Bridgewater's co‑CEO copied the email trail to the entire company so that everyone could learn from the exchange.

Along with modeling openness to criticism, Dalio has fought groupthink by refusing to make decisions based on hierarchy. Rather than conducting a vote where the majority rules, or deferring to people with the most seniority or status, he strives to create an idea meritocracy where all perspectives are heard and the best argument wins.

To do that, most leaders assign a devil's advocate. The hope is to get someone to challenge the majority's opinion. But according to Nemeth's research and Bridgewater's example, we're doing it wrong.

When people are designated to dissent, they're just playing a role. This causes two problems: They don't argue forcefully or consistently enough for the minority viewpoint, and group members are less likely to take them seriously.

"Dissenting for the sake of dissenting is not useful. It is also not useful if it is 'pretend dissent' — for example, if role-played," Nemeth explains. "It is not useful if motivated by considerations other than searching for the truth or the best solutions. But when it is authentic, it stimulates thought; it clarifies and it emboldens."

The secret to success is sincerity, the old saying goes: Once you can fake that, you've got it made. In fact, it's not easy to fake sincerity. For devil's advocates to be maximally effective, they need to really believe in the position they're representing — and the group needs to believe that they believe it, too.

In one experiment led by Nemeth, groups with an authentic dissenter generated 48% more solutions to problems than those with an assigned devil's advocate, and their solutions tended to be higher in quality. This was true regardless of whether the group knew the devil's advocate held the majority opinion or was unsure of the person's actual opinion.

And even if a devil's advocate did believe in the minority perspective, informing the other members that the role had been assigned was enough to undermine the advocate's persuasiveness. Whereas people doubt assigned dissenters, genuine dissenters challenge people to doubt themselves.

Even though the assigned position is less effective, it's an attractive option because it seems to provide cover. It's precarious to genuinely challenge the status quo when you're in the minority; if you can claim that you're just playing devil's advocate, you feel protected against criticism or hostility from the group.

But this isn't what Nemeth found. Compared to assigned dissenters, authentic dissenters don't make group members substantially angrier, and they're actually liked slightly more (at least they have principles).

Instead of appointing devil's advocates, Bridgewater unearths them. When an important decision needs to be made, Dalio often conducts a survey to find out what everyone thinks. He then picks people with extreme views to hold a debate, and invites the whole company to listen to the opposing perspectives.

"The greatest tragedy of mankind," Dalio says, "comes from the inability of people to have thoughtful disagreement to find out what's true."

Although everyone's opinions are welcome, they're not all valued equally. "Democratic decision-making — one person, one vote — is dumb," Dalio explains, "because not everybody has the same believability."

At Bridgewater, every employee has a believability score on a range of dimensions. When you express an opinion, it's weighted by whether you've established yourself as believable on that dimension. Your believability is a probability of being right in the present, and is based on your judgment, reasoning, and behavior in the past.

The most powerful lesson we can take away from Bridgewater is self-awareness. In presenting your views, you're expected to consider your own believability by telling your audience how confident you are.

If you have doubts, and you're not known as believable in the domain, you shouldn't have an opinion in the first place; you're supposed to ask questions so you can learn. If you're expressing a fierce conviction, you should be forthright about it — but know that your colleagues will probe the quality of your reasoning. Even then, you're expected to be assertive and open-minded at the same time.

As management scholar Karl Weick advises, "Argue like you're right and listen like you're wrong."

Adam Grant is a professor of management and psychology at the Wharton School of the University of Pennsylvania. This essay is adapted from his new book "Originals: How Non-Conformists Move the World".

SEE ALSO: Billionaire investor Ray Dalio: I owe my success to having 'great humility' and 'great fear'

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Two top executives at the world's largest hedge fund have called for votes on each other's conduct.

Seriously.

The Wall Street Journal's Rob Copeland and Bradley Hope have published a big story about an internal dispute at $160 billion Bridgewater Associates between founder Ray Dalio and co-CEO Greg Jensen.

Dalio, who founded Bridgewater in 1975, is questioning whether or not Jensen has "integrity," the report said.

Meanwhile, Jensen, who joined the Westport, Connecticut-based hedge fund 20 years ago and serves as CIO and co-CEO, is questioning if Dalio has fulfilled his succession plan he set forth in 2011.

According to the report, they're having a dozen top employees and stakeholders vote on the dispute.Bridgewater is renowned for its focus on transparency and honesty.

Upon joining, every employee is required to read Dalio's "Principles," a 123-page manifesto.

One of the principles advises to employees to "have integrity and demand it from others. A) Never say anything about a person you wouldn't say to them directly, and don't try people without accusing them to their face. B) Don't let 'loyalty' stand in the way of truth and openness."

Another principle says to be "radically transparent," meaning that they record everything.

Check out the full story at The WSJ »

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Bridgewater Associates, the $169 billion hedge fund behemoth led by Ray Dalio, just announced a big shake-up in its executive ranks.

The Westport, Connecticut-based hedge fund has hired former Apple executive Jon Rubinstein as co-CEO. He will replace Greg Jensen in that role.

Jensen, who joined the Westport, Connecticut-based hedge fund 20 years ago, will remain co-CIO.

Here's the note sent to clients:

As you know, we are always in the process of figuring out the best way to handle things. For a number of years, we have been transitioning from an entrepreneurial firm run by its founder to an institution run by many capable people. We refer to this as our "management transition" because Ray is continuing in his responsibilities on the investment side of the business.

For the most part, though not exclusively, this management transition has been gradual and undertaken by the same group of people who have been at Bridgewater since the process began in 2010. These changes include transfers of both management responsibilities and equity ownership from Ray to the next generation of Bridgewater leaders. Our plan is to complete these shifts in four or five years.

How Bridgewater is Run and How the Transition is Being Managed

We have a partnership management model comprised of a Management Committee led by co-CEOs (currently Eileen Murray and Greg Jensen) and a Stakeholders Committee overseen by co-executive chairmen (currently Ray and Craig Mundie). Craig joined us about two years ago after being Chief Research and Strategy Officer at Microsoft, where he was for 22 years.

The Management Committee is comprised of our three co-CIOs (Ray, Bob Prince, and Greg) as well as Eileen, David McCormick, and Osman Nalbantoglu. Eileen, who oversees a significant portion of our operations, had a distinguished career on Wall Street prior to joining Bridgewater in 2009. David, who joined Bridgewater at about the same time as Eileen after serving as Under Secretary of Treasury with Hank Paulson during the financial crisis, leads our client organization and engagement with key clients and policymakers around the world. Osman, who joined Bridgewater in 2008 as a partner from McKinsey, oversees our account management and trading departments. This team is the group responsible for managing Bridgewater.

The Stakeholders Committee is essentially Bridgewater's board of directors in that it represents Bridgewater stakeholders and is responsible for ensuring that management is operating excellently. In addition to Ray and Craig Mundie, it includes, Bob Prince (who has been at Bridgewater for 30 years), Greg Jensen (who has been at Bridgewater for 20 years) Giselle Wagner (who has worked with Bridgewater for almost 30 years), Randal Sandler (over 20 years), and Dan Bernstein (almost 30 years).

Consistent with how Bridgewater has operated for many years, this partnership relies on merit-based decision making to govern the firm. The primary responsibility for management lies with the CEOs (and the Management Committee) and the primary responsibility for assessing the CEOs and management resides with the Chairmen (and the Stakeholders Committee). All senior management issues and disputes are resolved by these people.

That is our governance structure which has evolved since we started the management transition six years ago. And, of course, which people are in what roles also continues to change as we learn about the management team and about our changing requirements.

One of the things that we have learned over the last six years is that it is probably too much for the CIOs to also serve as CEOs. The company had grown up with Ray leading both investment management (as CIO) and company management (as CEO)-and Greg had a similar set of responsibilities. However, as Bridgewater has evolved from a boutique to an institution, the company has become too large for anyone to oversee with such split attentions. While currently Greg is a co-CEO (with Eileen) and a co-CIO (with Ray and Bob), we have concluded that in order to have pervasive excellent management, we need CEOs who can give their full attention to the company's management, and we want Greg to shift his full attentions to investment responsibilities. Also, because technology is so important to us, we wanted one of our co-CEOs to be very strong in that area.

Jon Rubinstein Background

Recently we finalized an agreement with Jon Rubinstein to join Bridgewater as co-CEO later this year. Jon has helped launch some of the most influential computing products of our time. He worked closely with Steve Jobs for almost 16 years, first running hardware engineering at NeXT and then at Apple, where he was SVP of hardware engineering and later SVP of a new division for the iPod, a device he was instrumental in creating. He then became the driving force behind Palm's smartphone devices, serving as Executive Chairman of the Board of Palm, Inc. from June 2007 and Chief Executive Officer and President from June 2009 until its acquisition by the Hewlett-Packard Company in 2010. More recently, Jon was SVP and General Manager, Palm Global Business Unit, and then SVP, Product Innovation, for the Personal Systems Group at HP. He currently sits on the board of directors at Amazon.com, Inc. and Qualcomm Incorporated and is a member of the National Academy of Engineering.

Technology is pervasively important at Bridgewater, especially since one of our major strategic initiatives in the coming years is to continue building out the systemized decision-making that has been so successful in our investment area and to extend it to our management as well. Jon's track-record of building world class products will be a tremendous boost to the efforts we already have underway. We are thrilled to have him join us and bring his unique management and technology talents to our team.

Jon is expected to join us in May. Until then and perhaps for some time thereafter, Greg, Eileen, Ray and the other members of the Management Committee will continue to oversee the management of Bridgewater, though the exact timing and responsibilities have yet to be worked out.

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Bridgewater Associates, the $169 billion hedge fund led by Ray Dalio, just sent out a client note announcing a big shakeup at the management level.

Accompanying the announcement, the hedge fund included another note criticizing the media for its "mischaracterization" of the firm when it  comes to its succession process, culture, and views on China.

Here's the full note:  

Our Challenges with the Media

We are now in the awkward position of having some in the media mischaracterize what we are doing and what we are thinking. Rather than let these mischaracterizations stand, we want to clarify our thinking. But first, we would like to explain our challenges in dealing with the media.

While we have always tried to stay below the radar, as we've grown, the media has given us increased attention. Because we originally refused to deal with them and because of their tendency to sensationalize, their pictures of Bridgewater were distorted. We sought professional advice and were told that we could no longer stay below the radar and it was best for us to clarify inaccurate pictures and to try to be understood. While we found that approach to be better than having no contact, we also found that some distortions continued, though there were fewer of them than otherwise would have been.

Recently there have been three big areas of distortion:

1) The first is about our succession process.

We have been progressing as we've conveyed to you. As explained in our last quarterly letter to clients: "we're in the midst of a planful transition from a founder-led boutique to a professionally managed institution. We expected that this journey would be challenging, and that is why we planned for a ten-year process . . . We're learning a lot through this process and continue to struggle with our gaps." In other words, as a management team, we have been and still are working through who is best suited to do what.

As you know, we have a radically transparent culture so that everyone in the company can see our deliberations. This led to our deliberations being leaked to the media, which resulted in an inaccurate picture being painted and us getting unwanted attention. It also made it appear that something unique was happening. While it was correct that we were deliberating our next steps, how these deliberations were going was distorted in a way that failed to convey key dimensions of what was going on. At the same time, we were in the process of determining next steps and negotiating the employment arrangement with Jon Rubinstein (see accompanying announcement) and we're not yet in a position to share our next steps.

We now can share these steps, and the announcement that accompanies this message conveys them and how they were determined. In a nutshell, we concluded that it made the most sense to have Greg spend less time on management and more time on investments and that we needed to bring in an exceptional co-CEO with a strong tech focus to supplement the existing leadership. We assure you that, as always, we will be as prompt as is practical in conveying such key developments to you.

2) The second is about our culture.

Those who know us know that we strive to have meaningful work and meaningful relationships through radical truth (especially about our mistakes and weaknesses) and radical transparency (so there is no spin). They also know that this approach is the reason for our success. Some people in the media who don't know us mischaracterize that culture, either because of lack of knowledge of it or because of the intent to sensationalize it. While we have not let people from the media in to study our culture, we have let preeminent organizational psychologists and researchers examine us. You can read the analysis of Robert Kegan (William and Miriam Meehan Professor in Adult Learning and Professional Development at Harvard Graduate School of Education) in the Harvard Business Review; that of Edward D. Hess (Professor of Business Administration at the Darden Graduate School of Business) in his book "Learn or Die" (Columbia Business School Publishing, 2014); and that of Wharton School professor Adam Grant in "Originals: How Non-Conformists Move the World" (Viking, 2016).

3) The third concerns our thinking about China.

To reiterate, we believe that China is going through the same sort of debt and economic adjustment processes that all countries have gone through at one time or another. These adjustments are healthy and China will come out of them stronger, though it will be weaker while it is going through them. We believe that to characterize China either as not having significant challenges or as facing a terrible situation would be inaccurate. Yet, because many in the media prefer to use more dramatic characterizations, they distort and take our comments out of context.

Hopefully you know us well enough to assess us directly rather than through media.

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If you take a job at Bridgewater Associates — the world's largest hedge fund, with $169 billion in assets — you're agreeing to abide by founder Ray Dalio's "Principles," a manual of 210 musings on management and character.

It serves as an introduction to the hedge fund's culture of "radical transparency." At Bridgewater's Westport, Connecticut, headquarters, all meetings and interviews are recorded and logged.

Employees are also required to refrain from keeping criticisms of their colleagues or managers, including Dalio, to themselves

To ensure that the right people are recruited, Dalio lays out his hiring philosophy in "Principles": "Hire right, because the penalties of hiring wrong are huge," he writes.

Dalio values a person's character and way of thinking over their skill set, and he has managers express this in Bridgewater's job postings.

For example, a current posting for a compliance associate states that the team is looking for someone who is "Logical with strong common sense,""Not afraid to speak up and make suggestions for areas of improvement," and "Self-aware, reflective, and able to learn from mistakes."

Dalio writes that instead of trying to overcome the fact that managers have a tendency to look for their own traits in applicants, it is up to the manager to use different team members as specialized interviewers to root out a candidate's character.

"For example, if you're looking for a visionary, pick a visionary to do the interview where you test for vision," he writes. "If there is a mix of qualities you're looking for, put together a group of interviewers who embody all of these qualities collectively." It's of utmost importance that you deeply trust these interviewers, he says.

It's necessary to pay careful attention to someone's track record, Dalio explains, but to also use references, research, and interviews to understand why candidates made the career decisions they did.

He and his managers look for someone who is just as inquisitive about the company and interviewers as they are about the candidate. "Look for people who have lots of great questions," he writes. "These are even more important than great answers."

It's up to a manager to find "sparkle" in a candidate. "If you're less than excited to hire someone for a particular job, don't do it," he writes. "The two of you will probably make each other miserable."

And then if you feel this "click," make your salary offer a premium on what that candidate was paid before, and what you think their attributes justify. Don't worry about the market value of a job title.

After you finally make your hire, Dalio writes, ensure that you keep an eye on this person's progress during the onboarding process to validate whether you made the right decision.

It's about finding someone you respect and identify with. "Don't hire people just to fit the first job they will do at Bridgewater; hire people you want to share your life with," Dalio writes.

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At Bridgewater Associates, the world's largest hedge fund, there are few secrets.

All meetings are filmed, and the footage is available to everyone in the company. Employees rate each other's performance with proprietary iPad apps, and they can be fired for criticizing colleagues behind their backs rather than to their faces.

This culture of "radical transparency" was established by founder and chairman Ray Dalio and captured in "Principles," a manual of 210 lessons that all employees must read.

While Dalio credits this unique philosophy for much of Bridgewater's success — it manages $169 billion in assets — over the past few years he has been gradually backing away from management responsibilities while remaining active in investment strategy.

As part of a 10-year succession plan beginning in 2011, Bridgewater announced in March that it had recruited a new co-CEO: former Apple executive Jon Rubinstein. Dalio also used the opportunity to challenge the media's portrayal of Bridgewater, indirectly referring to The Wall Street Journal's February report about tensions between Dalio and co-CIO and former co-CEO Greg Jensen.

Business Insider asked Dalio by email to elaborate on the ways he considers Bridgewater's culture to be misunderstood, how he's putting systems in place to carry on his vision, and why Rubinstein's experience working with Steve Jobs, the late Apple CEO, made him an ideal addition to the team.

Richard Feloni: When did you develop the first iteration of your "Principles"? What served as your inspiration?

Ray Dalio: I started writing my investment principles down in the early 1980s and my management principles in the mid-1990s.

I found that whenever I encountered a situation, rather than just reacting to it, it was tremendously useful to think carefully about how I should react to it and other situations like it. Besides providing me with more thoughtful responses in each of these cases, approaching things this way provided me and others with guidance on how to deal with similar situations when they came up in the future.

Then I found out that I could put this guidance into computer code so that the computer could take in data and process it in the same way my brain did. This was key to improving our decision-making and led to the creation of our investment processes.

Over time, it also became important for me to share my management principles with the people I worked with because we had to agree on how we should be with each other — and that way is unique. Because the logic behind being radically honest and radically transparent with each other wasn't clear, it had to be spelled out in these principles. This became especially important in the mid-2000s, when Bridgewater grew quickly and we had a lot of new managers who wanted to know how to manage in a way consistent with our unique culture.

The text you can find today online is the product of my doing that.

Feloni: What are the benefits of a culture of radical transparency? What are some difficulties?

Dalio: Being radically transparent is tremendously beneficial for several reasons.

To be successful, we need everyone to think independently and work through disagreement to decide what's best. We call this an "idea meritocracy." And radical transparency is critical to having an idea meritocracy because it shows what's actually happening without spin and prevents people from maneuvering politically behind each others' backs. It brings problems and weaknesses to the surface and allows people to see how they are dealt with, so it's great for training people on how to deal with real problems.

It also allows everyone to express their thoughts about what's going on, which enhances two-way communication, yields better ideas, and ties employees to the mission of the company. Radical transparency fosters goodness in so many ways for the same reasons that bad things are more likely to take place behind closed doors.

The biggest challenge is that it can make people uncomfortable to have their mistakes and weaknesses so transparently shown. Since everyone has weaknesses, that experience happens to everyone who comes into this culture. Some people come to love it because they find learning about their weaknesses to be invaluable. It helps them guardrail themselves against their weaknesses, and they can be more themselves because they don't have to continue to hide their mistakes and their weaknesses.

As Harvard developmental psychologist Robert Kegan, who has studied Bridgewater, says, in most work places everyone is working two jobs. The first is whatever their actual job is; the second consists of managing others' impressions of them, especially by hiding weaknesses and inadequacies — which is an enormous waste of energy. In our culture, the idea is that everyone can just be comfortable being themselves, which is way more efficient in the long run.

The other big problem is how easily what we are doing can be misunderstood. It can sound mean, crazy, or like a cult to people who don't know what it's really like. Some people describe it as being like an intellectual Navy SEAL. Others describe it as being like spending time with the Dalai Lama to obtain self-discovery. To me, it's a wonderful community of people who bust their asses to be excellent.

But to read some of the distorted, sensationalized pictures you see in the media, you would think we're running an insane asylum.

Feloni: What are some of the biggest challenges the typical new employee faces while adapting to life at Bridgewater?

Dalio: Most people have a hard time confronting their weaknesses in a really straightforward, evidence-based way. They also have problems speaking frankly to others. Some people love knowing about their weaknesses and mistakes and those of others because it helps them be so much better, while others can't stand it. So we end up with a lot of people who leave quickly and a lot of people who wouldn't want to work anywhere else.

The person who flourishes here likes learning more than knowing and recognizes that the best learning comes from making mistakes, getting good feedback, and improving as a result of it. This requires people to be very humble and very open-minded because they realize that what they know is small in relation to what there is to know — and that what they don't know is what can really hurt them.

It's also a great place for people who like being thrown into a rapidly changing place with plenty of ambiguity.

Feloni: How do you define a personality type that is right for Bridgewater?

Dalio: We have a saying that "it takes all types to make a team." For example, some people who are creative are not reliable and vice versa; some see big pictures while others see details, etc. All of them are important to have on well-orchestrated teams. So we look for people with a wide range of thinking types who are self-reflective and can work together in an open-minded way.

Feloni: What do you consider to be the public's most glaring misconception about Bridgewater's culture?

Dalio: That it's a crazy and cruel place rather than a sensible and caring place.

When people only get little pieces of what we do here — things like looking at all mistakes and weaknesses openly, recording all of our meetings, having "baseball cards" for our people — without the higher-level goals behind these things, it's understandable that we seem strange.

Frankly, this is the most wonderful way of operating for people who want to be as effective as possible, so I wish it were better understood.

Feloni: Why did you decide to embark on a 10-year management-transition process? How are you ensuring that your management philosophy stays intact both through and following this process?

Dalio: Ten years might seem like a long time, but it actually seemed about right to us given that transitioning a founder-led, entrepreneurial company — especially one with a strong culture — is one of the hardest problems in business.

It was also a problem I've never encountered before, and because I've always been someone who learns through experience, I figured it would take me and others a lot of experimentation to determine what worked and what didn't.

We also knew going in that this wasn't going to be a one-to-one transition but a one-to-many, and we expected that selecting and building out the right team would take some time.

While I believe strongly that our unique management philosophy is one of the major reasons behind our unique success, I also believe that everyone needs to think independently and make their own decisions on what makes the most sense. And so my goal for these years has been to clearly articulate my philosophy and create tools for helping people practice it with the knowledge that when I'm no longer involved, it will be up to others to determine how useful these things are in running the company.

In the end, what matters most is that the people you work with share your values, so I've wanted people who value the meaningful work and meaningful relationships that always motivated me in building Bridgewater.

Feloni: What assured you that Jon Rubinstein was right for the role of co-CEO?

Dalio: There are two things I look for when assessing people.

First, do we share similar values of producing greatness through thoughtful disagreement? Jon worked next to Steve Jobs for 16 years doing that, and he clearly wants to do that with us.

Then I look at the skills we need. Jon has a world-class track record as both a leader of people and a shaper of technology, both of which we need.

Feloni: You've said that one of your major initiatives is "to continue building out the systematized decision-making" used in your investments and extend that to management. What does that entail?

Dalio: In our investment area, we've worked over decades to encode our best investment decision-making rules into computerized systems. This systematization allows us to refine the decision-making process and to compound our understanding to a degree that otherwise would be impossible.

To give you an idea of how such a system works, think of a GPS. Imagine what it would be like to have a GPS-like device that converts high-quality decision-making principles into formulas. It then processes data representing what is happening in the world and spits out recommended decisions. This is how our economic and investment thinking works. We are now doing the same things for management.

Feloni: You told clients that you're learning a lot as you move forward with the succession process. What have the biggest lessons been? Does Bridgewater's size make it more difficult to adapt quickly?

Dalio: We've learned a great amount about the key members of our team — Greg Jensen, Bob Prince, Eileen Murray, David McCormick, Osman Nalbantoglu, and me — not only about our strengths and weaknesses, but about their devotion to the organization and its mission.

These people deeply understand our mission and share our values, and they have shown themselves to be more committed to making Bridgewater great than to any ego-driven attachments to particular roles and responsibilities.

There are many other key people at all levels of the organization who are the same way, and we've also found great new people who understand our mission, like Craig Mundie and Jon Rubinstein.

The way we're constantly evolving and refining what we're doing can be very confusing to outsiders, especially when they read the typical business press, which attaches a lot of sensational drama to these kinds of things. But to us, this is just the natural way a group of close partners figures out how to be most effective together.

We've also learned a lot about how to build a governance system that's consistent with our idea-meritocracy so that we can disagree and resolve disagreements well.

Feloni: Do you think we will see more firms with cultures similar to Bridgewater's?

Dalio: I think that it's inevitable. With the rapid advancement of technology, radical transparency is coming at all of us fast, so everyone will need to think about how best to deal with it.

It can be terrible or terrific. I think that people will increasingly appreciate how terrific it is. I also believe that idea meritocracies and computerized decision-making are coming at us fast and are fantastic.

If people are interested in knowing more about our way of making an idea meritocracy, that's really what "Principles" is about. I assume the book has been helpful because more than 2.5 million people have downloaded it, and I've received hundreds of thank-you notes for sharing it. To me, it's just the most logical and effective way to be.

But everyone has to decide for themselves what works for them and their organization.

SEE ALSO: The world's most successful hedge fund just made a big change — here's a look inside its unique culture

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Bridgewater Associates — the world's largest hedge fund, with $169 billion in assets — has recently undergone a notable shakeup.

Founder, chairman, and co-CIO Ray Dalio announced earlier this March that tech industry veteran Jon Rubinstein was signing on as one of Bridgewater's two co-CEOs, alongside Eileen Murray.

Rubinstein would take the place of Greg Jensen, who would give up his role of co-CEO, but remain co-CIO alongside Dalio.

It's a major step in the 10-year succession process that began in 2011, in which Dalio is handing off management responsibilities to focus solely on investing strategy.

Dalio explained to Business Insider why Rubinstein was an ideal fit for the job:

There are two things I look for when assessing people.

First, do we share similar values of producing greatness through thoughtful disagreement? Jon worked next to Steve Jobs for 16 years doing that, and he clearly wants to do that with us.

Then I look at the skills we need. Jon has a world-class track record as both a leader of people and a shaper of technology, both of which we need.

At Bridgewater, the company's roughly 1,500 employees abide by "radical transparency," in which nearly all meetings are filmed and archived for anyone to view, employees rate each other's performance in proprietary iPad apps, and criticizing colleagues behind their backs is a fireable offense. Dalio explained that, "because it can make people uncomfortable to have their mistakes and weaknesses so transparently shown," Bridgewater's "idea meritocracy" is not for everyone.

He was assured that Rubinstein could thrive in this culture because Rubinstein spent the 1990s and early 2000s as one of late Apple CEO Steve Jobs' top executives, and Jobs is remembered for his brutally honest management style.

And Rubinstein's long tech career, which includes a key role in developing the iMac and iPod, is a perfect fit for Bridgewater's reliance on increasingly sophisticated automated trading software.

When Dalio announced the recruitment of Rubinstein and Jensen's giving up of the role of co-CEO, he argued, without directly referencing it, that a Wall Street Journal report from February mischaracterized a dispute between him and Jensen, and that the hiring of Rubinstein was already in the works when they were settling a particular disagreement.

"In a nutshell, we concluded that it made the most sense to have Greg spend less time on management and more time on investments and that we needed to bring in an exceptional co-CEO with a strong tech focus to supplement the existing leadership,"Dalio wrote.

"The way we're constantly evolving and refining what we're doing can be very confusing to outsiders, especially when they read the typical business press, which attaches a lot of sensational drama to these kinds of things," Dalio told Business Insider. "But to us, this is just the natural way a group of close partners figures out how to be most effective together."

SEE ALSO: Ray Dalio, head of the world's largest hedge fund, explains his succession plan for Bridgewater and how its 'radically transparent' culture is misunderstood

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Bridgewater Associates' roughly 1,500 employees abide by a culture of "radical transparency."

At the Westport, Connecticut-based hedge fund — the world's largest, with $169 billion in assets — all meetings are filmed and with very few exceptions made available to employees. Employees rate each other's performance using proprietary iPad apps to publicly display averages in "baseball cards" for each person, and criticizing colleagues behind their backs will get you fired.

The foundation for this culture is founder, chairman, and co-CIO Ray Dalio's "Principles," a manual of 210 lessons that all employees must be intimately familiar with.

Dalio readily admits that the culture is not for everyone. In 2014, he told UVA's Darden School of Business professor Edward D. Hess that the attrition rate over an employee's first 18 months was 25%— that is, one in four employees didn't last over a year and a half.

In a recent interview with Business Insider, Dalio explained why it can be difficult adapting to his company's way of doing things:

Most people have a hard time confronting their weaknesses in a really straightforward, evidence-based way. They also have problems speaking frankly to others. Some people love knowing about their weaknesses and mistakes and those of others because it helps them be so much better, while others can't stand it. So we end up with a lot of people who leave quickly and a lot of people who wouldn't want to work anywhere else.

A person who does decide to stay, he continued, "likes learning more than knowing and recognizes that the best learning comes from making mistakes, getting good feedback, and improving as a result of it. This requires people to be very humble and very open-minded because they realize that what they know is small in relation to what there is to know — and that what they don't know is what can really hurt them. It's also a great place for people who like being thrown into a rapidly changing place with plenty of ambiguity."

Essentially, Dalio said, it doesn't take long for people to realize whether or not they want to work in a setting where there are few secrets among employees. But those who do decide to stay do so with an intense dedication to playing their part in Dalio's massive machine.

SEE ALSO: Ray Dalio, head of the world's largest hedge fund, explains his succession plan for Bridgewater and how its 'radically transparent' culture is misunderstood

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If a company's founder and head of recruiting have a meeting about the latter's lack of reliability, it would seem obvious that the discussion be kept behind closed doors.

But at Bridgewater, such a discussion would be filmed and the video readily available for any of the hedge fund's roughly 1,500 employees to view.

And that's what happened around four years ago when founder, chairman, and co-CIO Ray Dalio sat down with co-head of recruiting John Woody, who has held that position since 2009.

The Westport, Connecticut-based hedge is the largest in the world, with $169 billion in assets, and Dalio credits much of its success to its culture of "radical transparency."

At Bridgewater, every meeting is filmed and stored in an internally public archive (with few exceptions) and employees use proprietary iPad apps to rate each other's performance. Average scores for these traits are listed on "baseball cards" for each employee. The culture is based on Dalio's "Principles," a collection of 210 lessons that all employees must be intimately familiar with.

For Harvard professors Robert Kegan and Lisa Laskow Lahey's new book "An Everyone Culture," Kegan spent time at Bridgewater HQ, where he was shown a meeting between Dalio and Woody in which Dalio chastised Woody for consistent reports about Woody's tendency to show up late for meetings, miss deadlines, and leave tasks incomplete.

Woody and Dalio let Kegan publish an excerpt of their heated conversation to illustrate transparency at work:

Dalio: He told you to deliver the daily updates. I told you to deliver the daily updates.

Woody: I'm in agreement about the daily updates. No question.

D: And so there are two issues. Not only aren't you getting the daily updates, but we have a chronic reliability issue. You cannot be trusted to do the things you're asked to do.

W: Um ... when you take it to that level, I disagree with you. But when we're talking about—

D: That's your problem.

W: Well, can we explore that?

D: Yes, of course!

W: Because I think I take on massive amounts of responsibility and deliver on all of them. There are certain things that—

D: No, you don't. It's become a joke, about your reliability, and your reliability grades. You're given assignments, you don't do it. You are given the daily updates. You're asked to do stuff. This is your problem. You don't embrace your problem.

Woody, who has been with Bridgewater since 2005 and spent two years as Dalio's chief of staff, told Kegan that he remained angry and defensive for a few weeks after that meeting. In retrospect, he realized that, to use a phrase from "Principles," Dalio had successfully "touched the nerve."

"Here, we pride ourselves on being logical and facing the truth, but my initial response was, 'You're wrong!' which is me already being illogical, because I'm not even asking him why he thinks I'm unreliable," Woody said.

Woody's talent or drive were valued and not questioned, and it's why Dalio decided to improve rather than get rid of him. Again, this was someone that Dalio trusted both as a confidante and as one of the people in charge of building the Bridgewater team.

Woody explained that Dalio and his colleagues continued to point out his chronic unreliability during this time, and eventually, he started to "come to a realization that not only is it a problem for me professionally, but it's actually been a problem for me personally all the way back to the time where I'm eight years old." There was no splitting of work and personal lives in this consideration, and, in the interest of radical transparency, childhood memories were fair game.

The issue was resolved when Woody stopped being defensive and decided to establish new goals and habits related to his behavior. Since then, he told Kegan, he's paused longer before making a promise, visualizes his workflow for a project, checks in more frequently with his colleagues, and makes better use of his team.

In a recent interview with Business Insider, Dalio said that it's no secret that Bridgewater's culture is not a fit for everyone. As of 2014, a full 25% of new recruits didn't stay longer than 18 months. But those who do stay and rise through the ranks as Woody did, Dalio said, embrace the habit of sometimes brutal honesty intended to compensate for weaknesses.

"It can sound mean, crazy, or like a cult to people who don't know what it's really like," Dalio said. "Some people describe it as being like an intellectual Navy SEAL. Others describe it as being like spending time with the Dalai Lama to obtain self-discovery. To me, it's a wonderful community of people who bust their asses to be excellent."

Excerpts reprinted by permission of Harvard Business Review Press. Excerpted from "An Everyone Culture: Becoming a Deliberately Developmental Organization" by Robert Kegan and Lisa Laskow Lahey. Copyright 2016. All rights reserved.

SEE ALSO: Ray Dalio, head of the world's largest hedge fund, explains his succession plan for Bridgewater and how its 'radically transparent' culture is misunderstood

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Bridgewater Associates — the world's largest hedge fund, with $169 billion in assets under management — is in the midst of a major leadership transition.

In 2011, its founder Ray Dalio initiated a 10-year transition plan in which he would gradually hand over people management power so he could solely focus on his role as co-CIO.

By 2022, Dalio plans to be monitoring Bridgewater's investments, but without running his firm's Westport, Connecticut headquarters.

In a recent interview with Business Insider, Dalio said that because the culture of radical transparency he's created is unique, it has not been an easy process — but that doesn't mean it's been chaotic.

Most importantly, he said, it's been a learning experience, where he's discovered that in order for Bridgewater to outlive him yet retain his vision, he's needed to focus his executive team's responsibilities onto their strengths and to automate his management philosophy through standardized processes that don't require his presence in the office.

He mentioned that it's already improved the efficiency of his executive team: co-CIO Greg Jensen, co-CIO Bob Prince, co-CEO Eileen Murray, president David McCormick, management committee member Osman Nalbantoglu, and himself.

"We've learned a great amount about the key members of our team ... not only about our strengths and weaknesses, but about their devotion to the organization and its mission," Dalio said. "These people deeply understand our mission and share our values, and they have shown themselves to be more committed to making Bridgewater great than to any ego-driven attachments to particular roles and responsibilities."

"The way we're constantly evolving and refining what we're doing can be very confusing to outsiders, especially when they read the typical business press, which attaches a lot of sensational drama to these kinds of things," he explained to Business Insider. "But to us, this is just the natural way a group of close partners figures out how to be most effective together."

In addition to hiring Steve Jobs acolyte Jon Rubinstein as co-CEO in place of Jensen (who remains with the team as co-CIO), Dalio also recruited Microsoft veteran Craig Mundie to serve alongside him as co-chairman. It's another decision that shows he is leaving management responsibilities to not only his most trusted investors but technology experts as well, because Bridgewater is reliant on automated investing.

As part of the 10-year transition, Dalio and his leadership team have also been determining ways to structure and automate the values in his "Principles" management guide, in the same way that he's automated his investing strategies. At Bridgewater, employees have proprietary apps on their iPads that allow them to rate each other's performance and make note of tensions, with the intention of resolving disagreements quickly, systematically, and transparently.

"Ten years might seem like a long time, but it actually seemed about right to us given that transitioning a founder-led, entrepreneurial company — especially one with a strong culture — is one of the hardest problems in business," Dalio said.

"While I believe strongly that our unique management philosophy is one of the major reasons behind our unique success, I also believe that everyone needs to think independently and make their own decisions on what makes the most sense. And so my goal for these years has been to clearly articulate my philosophy and create tools for helping people practice it with the knowledge that when I'm no longer involved, it will be up to others to determine how useful these things are in running the company."

SEE ALSO: Ray Dalio, head of the world's largest hedge fund, explains his succession plan for Bridgewater and how its 'radically transparent' culture is misunderstood

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Ray Dalio took home $1.4 billion last year through his hedge fund Bridgewater Associates, according to Institutional Investor's annual list of the top-earning hedge fund managers, released Tuesday.

Dalio ranked third in 2015, behind Citadel's Ken Griffin and Renaissance Technologies' Jim Simons, who both made $1.7 billion.

Bridgewater is the world's largest hedge fund, with $169 billion in assets under management, and is in the midst of a major leadership transition.

In 2011, Dalio initiated a 10-year transition plan in which he would gradually hand over people management power so he could solely focus on his role as co-CIO.

By 2022, Dalio plans to be monitoring Bridgewater's investments, but without running his firm's Westport, Connecticut headquarters.

In a recent interview with Business Insider, Dalio said that because the culture of radical transparency he's created is unique, it has not been an easy process— but that doesn't mean it's been chaotic.

Most importantly, he said, it's been a learning experience, where he's discovered that in order for Bridgewater to outlive him yet retain his vision, he's needed to focus his executive team's responsibilities onto their strengths and to automate his management philosophy through standardized processes that don't require his presence in the office.

He mentioned that it's already improved the efficiency of his executive team: co-CIO Greg Jensen, co-CIO Bob Prince, co-CEO Eileen Murray, president David McCormick, management committee member Osman Nalbantoglu, and himself.

"We've learned a great amount about the key members of our team ... not only about our strengths and weaknesses, but about their devotion to the organization and its mission," Dalio said. "These people deeply understand our mission and share our values, and they have shown themselves to be more committed to making Bridgewater great than to any ego-driven attachments to particular roles and responsibilities."

"The way we're constantly evolving and refining what we're doing can be very confusing to outsiders, especially when they read the typical business press, which attaches a lot of sensational drama to these kinds of things," he explained to Business Insider. "But to us, this is just the natural way a group of close partners figures out how to be most effective together."

In addition to hiring Steve Jobs acolyte Jon Rubinstein as co-CEO in place of Jensen (who remains with the team as co-CIO), Dalio also recruited Microsoft veteran Craig Mundie to serve alongside him as co-chairman. It's another decision that shows he is leaving management responsibilities to not only his most trusted investors but technology experts as well, because Bridgewater is reliant on automated investing.

As part of the 10-year transition, Dalio and his leadership team have also been determining ways to structure and automate the values in his "Principles" management guide, in the same way that he's automated his investing strategies. At Bridgewater, employees have proprietary apps on their iPads that allow them to rate each other's performance and make note of tensions, with the intention of resolving disagreements quickly, systematically, and transparently.

"Ten years might seem like a long time, but it actually seemed about right to us given that transitioning a founder-led, entrepreneurial company — especially one with a strong culture — is one of the hardest problems in business," Dalio said.

"While I believe strongly that our unique management philosophy is one of the major reasons behind our unique success, I also believe that everyone needs to think independently and make their own decisions on what makes the most sense. And so my goal for these years has been to clearly articulate my philosophy and create tools for helping people practice it with the knowledge that when I'm no longer involved, it will be up to others to determine how useful these things are in running the company."

SEE ALSO: Ray Dalio, head of the world's largest hedge fund, explains his succession plan for Bridgewater and how its 'radically transparent' culture is misunderstood

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Bridgewater Associates, the world's largest hedge fund firm, is seeing multibillion-dollar swings in performance.

The firm's flagship Pure Alpha fund fell about 12% this year through June, The Wall Street Journal and Institutional Investor's Alpha reported Wednesday.

Different Bridgewater investors are seeing different permutations of that negative performance, since the mega hedge fund creates variations of the strategy for its investors.

For instance, one Bridgewater investor was down 4.6% in its Pure Alpha strategy for June and 7.5% year-to-date, according to a person familiar with the matter.

It's unclear exactly how Pure Alpha performed after the Brexit news last month, though some of its holdings may have helped, the person said.

Pure Alpha was short the British pound, which helped the strategy after the Brexit shock, but was also long European and Japanese equities, which declined, the person said.

Ryan Fitzgibbon, a spokesperson for Bridgewater at external PR firm Prosek Partners, declined to confirm the figures or comment.

It's unclear how much money Bridgewater has lost this year, especially since the firm's All Weather fund, another popular strategy, is up about 10% over the same period, according to The Journal and Institutional Investor reports.

However, Bridgewater has recently seen a slide in assets. A regulatory filing shows that last year, the firm's assets dropped from $169 billion to $152 billion.

To be sure, the hedge fund still trounces its competitors in size. Public pensions, some of the industry's biggest backers, are more likely to be invested in Bridgewater than any other hedge fund, according to data tracker Preqin.

The firm's founder, Ray Dalio, is one of the hedge fund industry's best-paid managers, and took home more than $1 billion last year.

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FBI Director James Comey told the House Oversight and Government Reform Committee Thursday, on the subject of the investigation into Hillary Clinton's handling of classified information, that he was "a big fan of transparency."

When he was an executive at Bridgewater Associates, the world's largest hedge fund, from 2010 to 2013, he was enmeshed in a culture of "radical transparency" unlike that of any organization of its size.

In a new Politico article by Garrett M. Graff, Comey offers insight into his time at Ray Dalio's hedge fund, including a strange scenario where a 25-year-old employee confronted him after a meeting. Graff writes:

"It was just weeks after he joined Bridgewater — whose corporate culture of high-achieving intellectuals resembles a moneyed management cult that shares more in common with the 1970s personal-improvement fad est than it does with a typical Wall Street firm — that Comey was cornered by a similarly new 25-year-old employee. The junior associate interrogated the former Justice Department official on a seemingly illogical stance that Comey had taken in an earlier meeting. 'My initial reaction was "What? You, kid, are asking me that question?" ... I was deputy attorney general of the United States; I was general counsel of a huge, huge company. No 25-year-old is going to ask me about my logic,' he recalled. 'Then I realized "I'm at Bridgewater."'"

Dalio founded Bridgewater from his apartment in 1975 but didn't begin developing his intense management culture until the mid-1990s, he told Business Insider in March. He found that codifying his investment principles brought him success, and so he should do the same with the way he wanted his company run. It resulted in "Principles," a manual of 210 lessons that all Bridgewater employees must learn.

Here's a primer on what it's like to work at the hedge fund:

Comey told Politico it took him three months to adjust to Bridgewater, at which point he appreciated the hardline culture. In a video testimonial on Bridgewater's website, Comey said, "You combine that intelligence, the depth and the almost 360 [degree] vector of the questioning, there is no more demanding, probing, questioning environment in the world than Bridgewater."

You can read the full Politico story online »

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Bridgewater Associates has fired back at The New York Times for its recent story on the company's culture, "At World's Largest Hedge Fund, Sex, Fear and Video Surveillance."

"Although we continue to be reluctant to engage with the media, we again find ourselves in the position of being left with no choice but to respond to sensationalistic and inaccurate stories, both to make clear what is true and to do our part in fighting against the growing trend of media distortion," the company said in a statement.

"To let such significant mischaracterizations of our business stand would be unfair to our hard-working employees and valued clients who understand the reality of our culture and values," the statement added.

It said that New York Times reporters Alexandra Stevenson and Matthew Goldstein "never made a serious attempt to understand how we operate" and that they weaved together disparate stories to create a sensationalized image of the $154 billion investment firm.

The Times story, which was published Tuesday, drew from a complaint with the Connecticut Commission on Human Rights and Opportunities, in which a 34-year old Bridgewater employee named Christopher Tarui, who is on leave, accused a superior of sexual harassment.

Bad things happen behind closed doors

Tarui said the company, which has a culture of "radical transparency" in which every meeting is recorded, tried to get him to withdraw his complaint. Intimidation is a focal point of the Times story, which also includes interviews with seven former employees and a filing with the National Labor Relations Board.

What seemed clear from the story was that Bridgewater's constant surveillance actually acted as a form of enforcing self-censorship. Bridgewater does not see it that way.

"The New York Times portrayed our taping of meetings as creating 'an atmosphere of constant surveillance ... that silence[s] employees who do not fit the mold.' It is well known that Bridgewater's taping of meetings is instead done to enable employees to hear virtually all discussions happening at the firm for themselves," the firm said in its statement.

It continued: "We make these tapes available to employees because we believe strongly that in order to have a real idea meritocracy, people need to see and hear things for themselves rather than through the spin of others. We also believe that bad things happen behind closed doors so that such transparency is healthy."

It also touted a recent anonymous employee survey in which "employees rated their agreement with the statement 'I believe that Bridgewater's culture and principles are key to its success' a 4.4 out of 5."

Bridgewater also said parts of the Times report were patently false. Specifically, it said employees were not sometimes asked to lock away their personal cellphones unless they were on the trading floor, in which case doing so is standard practice for the industry. It also said the firm had not lost billions because of performance.

Bridgewater sent us the full statement, originally published on LinkedIn:

Although we continue to be reluctant to engage with the media, we again find ourselves in the position of being left with no choice but to respond to sensationalistic and inaccurate stories, both to make clear what is true and to do our part in fighting against the growing trend of media distortion. To let such significant mischaracterizations of our business stand would be unfair to our hard-working employees and valued clients who understand the reality of our culture and values.

While we all would hope that we could count on the Times for accurate and well-documented reporting, sadly, its article "Sex, Fear, and Video Surveillance at the World's Largest Hedge Fund" doesn't meet that standard. In this memo we will give you clear examples of the article's distortions. We cannot comment on the specific case raised in the article due to restrictions we face as a result of ongoing legal processes and our desire to maintain the privacies of the people involved for fear that they too will be tried in the media through sensationalistic innuendos. Nonetheless, we can say that we are confident that our management handled the case consistently with the law and we look forward to its successful resolution through the legal process.

To understand the background of this story, you should know that the New York Times reporters never made a serious attempt to understand how we operate. Instead they intentionally strung together a series of misleading "facts" in ways they felt would create the most sensationalistic story. If you want to see an accurate portrayal of Bridgewater, we suggest that you read examinations of Bridgewater written by two independent organizational psychologists and a nationally-renowned management researcher. (See An Everyone Culture by Robert Kegan; Learn or Die by Edward Hess; and Originals by Adam Grant.)

Rather than being the "‘cauldron of fear and intimidation'" the New York Times portrayed us as, Bridgewater is exactly the opposite. Bridgewater is well known for giving employees the right to speak up, especially about problems, and to make sense of things for themselves. Everyone is encouraged to bring problems to the surface in whatever ways they deem to be most appropriate. To be more specific, our employees typically report their business problems and ideas in real time through a public "issue log" and a company-wide survey that is administered quarterly. More sensitive matters are reported through an anonymous "complaint line," and all employees have access to an Employee Relations team charged with being a closed, confidential outlet outside of the management chain for handling issues of a personal nature.

The New York Times portrayed our taping of meetings as creating "an atmosphere of constant surveillance . . . that silence[s] employees who do not fit the mold." It is well known that Bridgewater's taping of meetings is instead done to enable employees to hear virtually all discussions happening at the firm for themselves. We make these tapes available to employees because we believe strongly that in order to have a real idea meritocracy, people need to see and hear things for themselves rather than through the spin of others. We also believe that bad things happen behind closed doors so that such transparency is healthy.

While we acknowledge that this culture of openness is not for everyone, our employees overwhelmingly treasure this way of operating. In our most recent anonymous survey, employees rated their agreement with the statement "I believe that Bridgewater's culture and principles are key to its success" a 4.4 out of 5. Many of our employees say they wouldn't want to work anywhere else because they so appreciate our unique idea meritocracy in which meaningful work and meaningful relationships are pursued through radical truth and transparency. The New York Times article doesn't square with common sense. If Bridgewater was really as bad as the New York Times describes, then why would anyone want to work here?

The New York Times said that some employees "are required to lock up their personal cellphones each morning when they arrive at work" which made it sound like employees can't carry their phones around with them like employees at other companies do. This is wrong. The truth is that the vast majority of our employees freely carry around their cell phones; the only place they can't is on our trading floor, where cell phones are prohibited. This policy is to protect the confidentiality of trades in order to protect our clients' money.

The New York Times said that the company's culture makes it impossible for employees to have matters handled confidentially. That is also wrong. As stated above, we have clearly defined channels for reporting private matters that have been utilized by many employees over the years. These matters have always been kept confidential.

The New York Times said "over the last two years, the firm has lost billions of dollars for investors as a result of mixed performance." That is wrong as well. In 2015, our Pure Alpha fund had its 15th consecutive year of positive returns. This year, year-to-date, we have made $1.3 billion for our clients across our strategies. While that is less than expected, it is within our stated range of expectations. Notably, our clients who know us well have demonstrated their confidence in us by investing $12 billion in new assets over the last seven months.

Concerning legal matters, because Bridgewater is culturally committed to the pursuit of truth, we have always had a strong preference to not "settle" claims but rather to be judged by the appropriate legal or regulatory system, even though that is not the expedient thing to do. Like many organizations, we encounter frivolous claims made in an effort to extract financial gain. Most companies prefer to settle them because it saves time and legal costs—and avoids the sort of distorted publicity that we are now encountering. We choose to contest them instead. At the same time, we have clear policies and standards of behavior, and when we discover behavior inconsistent with them, we act decisively. We are proud to say that in our 40 year history we have had no material adverse judgments.

We are far from perfect and we like to raise our imperfections to the surface so that we can deal with them honestly and transparently, while also protecting personal privacy. This approach is controversial and gives the media a lot of material to pick from to mischaracterize, but we believe that in the long run it is the best way for improving. It has been the biggest reason for our success. We look forward to continue being judged by our employees, our clients, and the legal and regulatory parties who are responsible for overseeing our behaviors, rather than by the media.

SEE ALSO: Ray Dalio, head of the world's largest hedge fund, explains his succession plan for Bridgewater and how its 'radically transparent' culture is misunderstood

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People have been talking about Bridgewater Associates and its culture of surveillance for years, and in general it has been met with skepticism and derision.

That has been the case again over the last few days. The $154 billion investment firm helmed by Wall Street legend Ray Dalio has yet again been confronted with decidedly bad press about its corporate culture.

In a New York Times story published on Tuesday called "At World's Largest Hedge Fund, Sex, Fear and Video Surveillance," reporters detail the firm's efforts to squash a sexual harassment claim now making its way through the Connecticut Commission on Human Rights and Opportunities.

Bridgewater called this story a "distortion of reality"— but only part of it. The firm has always proudly owned the part of its culture where everything is recorded, either on audio or video, in the name of what its founder calls "radical transparency."

According to the "principles" Dalio has also set out for the company, this is also supposed to encourage an environment in which people challenge each other's ideas and feel that there's an open dialogue.

Here's an example, from the New York Times report:

"It is routine for recordings of contentious meetings to be archived and later shown to employees as part of the company’s policy of learning from mistakes. Several former employees recalled one video that Bridgewater showed to new employees that was of a confrontation several years ago between top executives including Mr. Dalio and a woman who was a manager at the time, who breaks down crying."

Dalio has argued that this allows problems and weaknesses to rise to the surface and be dealt with objectively.

To me, the use of this logic is even scarier than the surveillance itself.

In the last few years researchers have learned more and more about the powerful connection between surveillance and silence, minority opinions, and self-censorship. For that we can thank Edward Snowden, the former NSA employee who leaked details about Prism, a far-reaching clandestine surveillance program designed to ensnare terrorists.

What the program's leak did was bring a crucial discussion about the nature of privacy in America — a discussion about what is and what is not acceptable within our values construct — to the the forefront of public discourse.

Had Bridgewater's culture been thrown into that conversation, it would have undoubtedly been judged outside of acceptable American privacy norms.

Bridgewater is not what we are; it's what millions of Americans fear we might become.

Silence scholarship

The selling point of the NSA's Prism program was simple — it's meant to keep us safe. In exchange for an invasion of privacy, Americans are supposed to believe that their lives may be spared from violence.

Yet according to Pew research, only 40% of Americans back the program. Being spied on is something we just don't like. Those that are OK with it, though, tend to take the "nothing to hide" argument. They don't care if the government is watching them because they don't care what the government sees.

This line of thinking was tackled in the San Diego Law Review in 2007 by DJ Solove. He said that people need privacy not because they have things they want to hide, but because they are concerned with "concealing information about themselves that others might use to their disadvantage."

That can include anything from when your kids will be with a babysitter to when you plan on going the dentist's for a root canal.

But again, 40% of Americans are willing to set this fear aside because they feel their lives are in danger. At Bridgewater, the rationale for surveillance is obviously thinner. It's sold as a part of a corporate culture — one that pays very handsomely.

More research tells us that this dedication to surveillance does not breed a culture of openness, but rather one of fear and suppression.

In a study published earlier this year called "Under Surveillance: Examining Facebook’s Spiral of Silence Effects in the Wake of NSA Internet Monitoring," Elizabeth Stoycheff examined what surveillance does to speech.

"Theoretically, it adds a new layer of chilling effects to the spiral of silence," Stoycheff wrote. "This is the first study to provide empirical evidence that the government’s online surveillance programs may threaten the disclosure of minority views and contribute to the reinforcement of majority opinion."

Asymmetrical information and asymmetrical power

Now consider the power dynamics at Bridgewater. Instead of the government watching you, it's your boss. Stoycheff's subjects silenced their opinions because they perceived there may be retaliation. But in reality, the government was/is far more disconnected from these people than, say, their employers.

Your employer can really mess with you.

Stoycheff's study found that people don't speak up for fear of two things. One is social isolation. Applied to Bridgewater, in the gentlest way, think of this as being afraid no one will hang out with you at the office holiday party.

The other fear is one Bridgewater can conjure far more easily than the government can.

"Fear of isolation, as traditionally measured, taps an individual's concern of being alienated from other members of society, but does not address fear of alienation or prosecution from the government. Csikszentmihalyi (1991) argues that social isolation is a minimal concern compared to material sanctions that government is capable of enacting, like losing one's job or instigating legal consequences," Stoycheff writes (emphasis ours).

It goes without saying that the powers that be at Bridgewater have their employee's livelihoods hanging directly in the balance. Legal consequences are also on the table. Radical transparency serves as a reminder that what is being said is also being judged, and judgments have consequences.

This is how fear, though it is often imperceptible to the naked eye, is silently passed from one person to another like a message sent through a cold tin can. This is fear dancing on an invisible wire, regulating every employee with the same subliminal message.

It says: "Do not speak unless you agree."

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Bridgewater Associates, one of the world's largest hedge funds, and perhaps the most recognisable name in the industry, has given the Bank of England's new stimulus package the thumbs up in a note circulated to clients.

Analysts from Bridgewater — which manages around $150 billion of assets globally — said in a note sent on Friday the actions of governor Mark Carney and the rest of the Monetary Policy Committee on Thursday were "appropriately aggressive" in trying to tackle the coming storm facing the British economy.

The bank cut interest rates to a historic low of just 0.25%, and launched a £70 billion programme of quantitative easing, including an unprecedented £10 billion dedicated to buying investment grade bonds from companies with substantial UK operations.

The rate cut was widely expected, with markets pricing an almost 100% chance of the cut happening, but the extension of bond buying, while not massively shocking, was not as widely expected.

Those actions, say Karen Karniol-Tambour and Melissa Saphier from Bridgewater, were the right way to go. Here's the extract from Bridgewater's analysis (emphasis ours):

"The Bank of England eased on Thursday, responding to the slowdown that is likely taking place in the UK following the Brexit vote. We think the BoE’s stimulation package was appropriately aggressive given today’s conditions, which present significant risks of “pushing on a string.” UK rates and spreads are already very low, though not as compressed as in Europe and Japan.

And like the ECB and the BoJ, which are struggling with easing effectively, the BoE is augmenting interest rate cuts and QE purchases of government bonds (which have limited effectiveness) with policies attempting to activate spenders in the economy more directly, by buying corporate bonds and offering cheap financing to banks. These are logical levers to use, given that the effectiveness of monetary policy is weak and the risks are asymmetric. That the BoE acted swiftly, before there was a chance for a downturn to become more entrenched, puts them in a better position as well."

Bridgewater's analysts also note the Bank of England's actions won't just have a positive impact on the British economy and markets, which is understandably the bank's focus, but also on global financial markets and conditions. While Brexit is obviously going to impact the UK economy in the most material and substantial manner, spillover effects are expected, although — in Europe at least — those effects seem not to have hit yet.

Here are Karniol-Tambour and Saphier once again (emphasis ours):

"Under such circumstances, the currency takes on a more prominent role as a lever of monetary policy, and the UK’s balance of payments conditions are conducive to a currency depreciation. Beyond the domestic impact, as the BoE’s money printing circulates through the financial system, the expansion in liquidity should on the margin have a favorable impact on global asset markets and conditions. The BoE’s moves represent another incremental step by developed world central banks to provide sufficient stimulation. There is now significant liquidity production from three of the world’s major central banks, and still a cautious attitude on the part of the Fed. This should reinforce the global move from cash to assets."

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Applying for a position at Bridgewater Associates can feel more like a psychological assessment than a job interview.

If someone wants to be part of the world's largest hedge fund, they will typically go through around five hours of personality surveys, a verbal logic assessment, and a thorough personal interview.

Bridgewater, which has $150 billion in assets under management, is based in the woods of Westport, Connecticut, and recruits some of the most talented people in the industry — but most important to the firm is whether a candidate can thrive in a world based on founder Ray Dalio's intricately detailed "Principles," his manifesto of 210 management insights that all employees must read.

Dalio founded Bridgewater in 1975 out of his apartment, and throughout the '80s he laid the foundation of a corporate culture based on "radical transparency."

Employees are encouraged to regularly dissect each other's thinking to determine the root of decision-making, to rate each other's performance using a proprietary iPad app called "Dots," and to send an audio file to any person mentioned in a meeting — which isn't an outlandish practice internally, since all meetings, with few exceptions, are either digitally recorded for audio or video. "Pain + Reflection = Progress" is a phrase all employees are intimately familiar with.

To learn how Bridgewater seeks out new employees and what it's like to apply there, Business Insider spoke with Brian Kreiter, Bridgewater's head of client service and marketing and cohead of its core management team, as well as several former Bridgewater employees who worked there within the last five years. We are refraining from sharing any identifying details of these former employees so as not to jeopardize their standing with the company.

Finding the best and brightest

Bridgewater declined to reveal how many employees it hired in 2015, but said it has 1,700 employees, and Dalio previously said its turnover rate for individual employees within their first 18 months is 25%. The company said 10% of its hiring last year was conducted on college campuses.

Like all hedge funds, Bridgewater seeks out entry-level employees with a high-level business education, but it is also an outlier in the way it both finds and attracts nontraditional candidates.

One former employee said the firm is largely uninterested in the stereotypical, brash "finance bro" you're likely to find on Wall Street, and that it tends to attract people who are "nerdier," more introspective — and that's the only reason this person accepted a job there.

Another former employee said that to them it felt like the more an entry-level candidate wanted a traditional finance career, the less likely they were to get a job at Bridgewater. This person said that as graduation approached, they felt at a loss for what to do next, thinking that only a "weird" company would accept them for their eclectic background.

Kreiter said he wouldn't go so far as to say that the company avoids young employees with traditional finance backgrounds, but that its approach allows for a much more diverse set of backgrounds than you may find elsewhere.

"We think of people in terms of the building blocks of their values, their abilities, and their skills," he said. This means that recruiters will be searching for the top students at elite colleges, even if that person studied art history or psychology.

"From a values perspective, we're trying to understand the way the world works — that's what our business is — and so we're really interested in people that have a sort of deep curiosity, people that have the patience to understand deep and complex systems," Kreiter said. "Now, whether those are biological systems, or economic systems, or political systems, it doesn't really matter. Somebody who has an interest in and an ability to understand that deeply is interesting to us."

A few employees told us that this results in an entry-level class with a notable number of employees who previously had no intention of going into finance. These employees are given a maximum of 15 months of on-the-job education in a classroom setting, typically for three two-hour sessions each week, Kreiter said.

This general ethos also applies to senior hires. For example, Dalio hired Silicon Valley veteran Jon Rubinstein as co-CEO earlier this year.

"There are two things I look for when assessing people," Dalio told us in March of the hire. "First, do we share similar values of producing greatness through thoughtful disagreement? Jon worked next to Steve Jobs for 16 years doing that, and he clearly wants to do that with us. Then I look at the skills we need. Jon has a world-class track record as both a leader of people and a shaper of technology, both of which we need."

A former employee said that the unusual application process engages the type of employee Bridgewater seeks, which consists of "broad-minded critical thinkers."

Computing your personality

Kreiter said that in the last five years or so, Bridgewater has been focusing on developing better ways to recruit people who will excel in Bridgewater's environment. Dalio previously told us this environment has been likened to being an "intellectual Navy SEAL" or "spending time with the Dalai Lama to obtain self-discovery," but that he considers it to simply be a place where they "bust their asses to be excellent."

Since making his "Principles" public in 2011, Dalio has been more open with the media about his unusual culture. But this has also led to critics accusing it of being a "cult" or oppressive to its employees. Regardless of criticisms, Dalio readily admits the institutionalized culture, which he imagines as running like an interlocking network of "machines," certainly is not for everyone.

It's why Bridgewater has expanded the personality survey portion of its application in recent years for use with all candidates who were not specially recruited.

While applications can vary by department and role, and "Blitz Days" for campus recruitment put 20-30 candidates through the process in a single day, there is a general outline for the online portion of the application.

Throughout this section, which can be completed on a candidate's computer at home, they learn about Bridgewater's unique approach to office life through corporate literature and videos featuring interviews with Dalio and current and former employees (including FBI Director James Comey).

Then the candidate takes four surveys. One is based on the Myers-Briggs Type Indicator, which measures whether you consider yourself an introvert or extrovert as well as other ways you interact with the world. Three other, lesser-known tests assess how you work with teams and how you fit into the workplace. This portion typically lasts two to four hours, according to our sources.

A fifth survey takes place over the phone with third-party consultants and is based on the psychologist Elliott Jaques' stratified systems theory, which envisions employees in a workforce fitting into one of seven "organizational strata" based on the level of work complexity they can handle and how that fits into a hierarchy. For example, a source told us, this call may be kicked off by a question like, "If you were the HR director for a company, how would you develop an employee referral program?"

If the candidate is eventually hired, they will then take a final survey in the office that lasts another two to three hours, and then all of the survey results will be fed into an algorithm. The result is the Bridgewater "baseball card"— a profile that portrays the employee's personality, values, and abilities.

Every employee at Bridgewater can view the baseball card of every employee, present and past, with the intention of maintaining a high level of transparency among coworkers.

Not the typical job interview

If a candidate makes it through a résumé screening and has survey results that suggest this person can fit into a role at Bridgewater, he or she then has a "life/culture" interview before possibly participating in a discussion group portion. This takes place at Bridgewater's Westport office or on a college campus during a Blitz Day. Hires for a high-level role often do not participate in a discussion, partially so that candidates vying for a prominent role are not aware of who they're up against.

"We're trying to understand how somebody thinks, how conceptual they are, how logical they are, how quickly they can metabolize new information and have that evolve their thinking, how creative somebody is — things of that nature," Kreiter said. "And so we developed a set of interview strategies to try and extract those things."

For several of the sources we spoke with, this interviewing section was the most unusual. One person said they felt slightly uncomfortable with how personal the life/culture interview got, and that the discussion portion felt as if they had stepped into a college classroom and were being quizzed by a professor.

A former employee clarified that the life/culture interview is meant to get an idea of how someone thinks and interacts with colleagues, and typically comprises common job interview questions like, "Tell me about a time you had hard feedback in your last job," or, "Tell me about a disagreement you had with your manager," but that interviews can occasionally go off the rails, which is a byproduct of an environment where employees are taught to "probe."

In those rare situations, a candidate may find themselves talking about something awkward, like their relationship with their father. This section, however, is meant simply to look for a culture fit and lasts around 30-60 minutes.

In the discussion portion, a group of candidates — the number can vary — for a particular role are gathered in a room and presented with a question that can lean toward the philosophical ("Should prisons be privatized?") or the technical ("How do leveragings work?").

A former employee said they had seen discussions that lasted anywhere from 20 minutes to two hours.

Bridgewater employees conducting the interview (the number of those giving the interview also varies) pay close attention to how the candidates respond as well as how they interact with each other.

"Are they adding ideas, are they adding structure and logic, are they able to go up and down conceptually in the discussion?" Kreiter said. "And then how are they interacting with each other? Is it the type of discussion that's going to make other people effective and help advance the discussion? That's what we're going for there, to try to emulate what we think people need to be doing here."

One former employee with knowledge of the process said the interviewers will sometimes take questions to logical extremes to test reactions. For example, an extreme of the prison question might be "Should all criminals be killed?" and if a person is so offended by the question that they refuse to answer as logically as they did earlier, the interviewer may determine that this person is too easily shaken for a particular role.

Another former employee said that while there are no "right" answers to these questions, there are "appropriate" answers, in the sense that what someone reveals about their thinking and value system either fits or doesn't fit into what is expected of the role in question.

Kreiter said the training process for interviewers is meant to safeguard against snap judgments, and that interviewers focus on being patient and prompting everyone to participate. "You don't want to miss the person that's a little bit quieter, or you don't want to miss the person who might take a little bit longer to answer," he said. "Just like you don't want to favor somebody who's a little bit more dominant just because they're dominant."

Bridgewater material

Ultimately, Kreiter said, using Dalio's terms, it's a matter of balancing how "bright" (high IQ, able to think analytically) and how "smart" (sharp common sense, able to synthesize large amounts of information) candidates are, as well as how open-minded.

If a candidate can make it through a résumé check, a round of personality surveys, a set of discussions, and, if necessary, skill-based tests (for coding, for example), then they may be ready for an offer. And while Bridgewater will only consider candidates who possess or can develop the skills necessary for a job, Dalio says that the process is aimed at finding someone who "sparkles." For certain roles, the manager in charge of hiring for that position will take candidates to meet the team they would be working with to see if both sides feel comfortable with the other.

In his "Principles," Dalio writes, "If you're less than excited to hire someone for a particular job, don't do it. The two of you will probably make each other miserable."

If you have firsthand knowledge of what it's like to work at the world's largest hedge fund, reach out to rfeloni@businessinsider.com. We can offer anonymity.

SEE ALSO: Ray Dalio, head of the world's largest hedge fund, explains his succession plan for Bridgewater and how its 'radically transparent' culture is misunderstood

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