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Newshrink 2
DEPARTMENT OF THE TREASURY DIVISION OF INVESTMENT P.O. BOX 290 TRENTON, NJ 08625-0290
June 24, 2011 MEMORANDUM TO: FROM: State Investment Council Timothy M. Walsh Director Bridgewater Presentation
SUBJECT:
We have invited Bridgewater Associates (Bridgewater) to make presentation to the State Investment Council on their global outlook. Bridgewater is an employee-owned institutional asset management firm founded in 1975 with over $94 billion in assets under management. Their flagship product, Pure Alpha, incorporates their best active management ideas into a single highly diversified portfolio. Pure Alpha, with $56 billion in assets, is utilized both as part of portable alpha programs and as a standalone hedge fund investment. Pure Alpha has produced an annualized return of 10.6% since its inception in 1991 with only three down years. They are considered a pioneer in the industry in the separation of alpha and beta and risk budgeting. Representing Bridgewater will be James L. Haskel, Portfolio Strategist and Joel Whidden, Senior Relationship Manager. Jim is a senior member of the research group with expertise in portfolio structuring and the foreign exchange, interest rate, commodity, and equity markets. Jim is a contributor to Bridgewaters Daily Observations. He also works with Bridgewaters clients to develop investment strategies that meet their objectives and to provide insight into the research groups thinking on global markets and economic conditions. Jim has been with the firm since 2003. Prior to joining Bridgewater, Jim was at Goldman Sachs from 1996-2003, both as a fixedincome portfolio manager in the Asset Management Division and a Senior Investment Strategist to Goldmans high net worth clients. From 1991-1994, Jim was an Associate Economist at Caxton Associates, a multi asset-class money management firm. He began his career as an economics researcher at the American Enterprise Institute. Jim received his M.P.P. from Harvard University: The John F. Kennedy School of Government (1996), and a B.A. from Franklin and Marshall College (1990). Joel joined Bridgewater in 2002. In Public Fund Marketing, Joel is responsible for new business development and client service for Public Funds within North America. Prior to joining Bridgewater, Joel spent 12 years in Institutional Asset Management Sales. Most recently, Joel served as Director of Public Fund Sales at Deutsche Asset Management and Co-Director of Public Fund Sales at Sanford C. Bernstein. He received his BBA from Texas Christian University in 1991.
New Jersey Is an Equal Opportunity Employer Printed on Recycled and Recyclable Paper
Joel Whidden Senior Relationship Manager Jim Haskel Senior Portfolio Strategist
ECONOMIC/MARKET DYNAMIC
Long-term real GDP growth is driven by rising productivity and labor force increases. Expansions and contractions of credit cause swings around this trend.
The business cycle is caused by self-correcting expansions and contractions of credit. The long term debt cycle is a self-reinforcing credit expansion/contraction, which perpetuates itself through asset prices, net worth, and leverage.
Linked Flexible
-2-
e.g. Brazil
e.g. China
-3-
0% -2%
Accelerated during crisis
-4-
CPI Y/Y
12% 10% 8% 6% 4% 2% 0% -2% -4% -6% 05 06 07 08 09 10 11
-5-
Dev World
FedTargetRate
8% 6% 4% 2% 0% 2% 4% 6% 00 01 02 03 04
EstimatedinterestrateimpactofQE
QE1:effective350bpratecut
05
06
-6-
07
08
09
10
11
350%
300%
250%
200%
150%
100%
50%
0% 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10
-7-
Japan Debt (% PGDP) Financial Sector 500% 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% 90 92 94 96 98 00 02 04 06 08 10 HH NonFin Business Public Sector
UK Debt (% PGDP) Financial Sector 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% 90 92 94 96 98 00 02 04 06 08 10
50% 0% 90 92 94 150% 100% 250% 200%
HH
NonFin Business
Public Sector
300%
Financial Sector
HH
NonFin Business
Public Sector
96
98
00
02
04
06
08
10
-8-
GROWTH SLOWDOWN
3m Growth Estimate
15% Developed World Emerging World
10%
5%
0%
-5%
-10% 00 01 02 03 04 05 06 07 08 09 10 11 12
-9-
Previous IMF Bailouts compared to Euro Periphery (Bubble Size Indicates $ Value of External Debt)
R us s ia 19 9 8 G re e c e 2 0 10
0.0% -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% -3.5% -4.0% -4.5% Italy Periphery Germany Greece France Spain Ireland Core Euroland Portugal
12% 10%
T ha ila nd 19 9 7
8%
M e xic o 19 9 4
Uk ra ine 2 0 0 8
Portugal
S pa in 2 0 10
6% 4%
2%
B ra zil 19 9 8 Indo ne s ia 19 9 7 T urk e y 2 0 0 0
Ire la nd 2 0 10
0% 0% 50%
Direct IMF lending cases do not include IMF lending to Hungary and Pakistan in 2008. External debt figures adjusted based on Bridgewater estimates of impact of pass-through lending and liabilities of foreign bank subsidiaries.
200%
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- 11 -
China
USA
Impact Weight of Food in CPI Developed World: 23% Emerging World: 56%
Balance in your asset allocation is key, because there are a wide dispersion of potential outcomes.
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Drawdowns
Traditional Asset Allocation 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Expectations are based on Bridgewater Associates understanding of global markets. There is no guarantee that the results shown can or will be achieved. Past results are not necessarily indicative of future results. WHERE SHOWN, HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
Equity Component
Correlation: 0.96
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Risk Allocation
Growth
Inflation
Growth
Inflation
Environmental Balance
Rising
Rising
Falling
Falling
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HISTORICAL PERFORMANCE
All Weather USD Strategy Cumulative Total Return (Gross of Fees, ln) 1100%
Annualized Returns Total Returns 11.5% 8.9% 10.0% Cash Returns 3.9% 3.9% 3.9% Excess Returns 7.7% 5.1% 6.1% Sharpe Ratio 0.74 0.40 0.32
900%
700%
500%
300%
100%
Through May-2011 -100% 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Data is estimated as of the date shown. Bridgewater started managing All Weather in 1996. Past results are not necessarily indicative of future results. WHERE SHOWN, HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. Source: Global Financial Data Inc. and Bridgewater Analysis.
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Disclosures
Please read the following notes and disclosures as they provide important information and context for the research and performance presented herein. Additional information is available upon request except where the proprietary nature of the information precludes its dissemination.
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NOTES
Note 1 : For illustrative purposes only. The example does not necessarily indicate the actual historical or current implementation of Bridgewaters strategies. Markets listed may or may not be currently traded and list is subject to change without notice. Note 2 : For the top chart, the data used to calculate the performance of the Top 30 Managers in the charts comes from the eVestment Alliance database and is rolling annual data. The chart reports the average returns of the 30 managers whose benchmarks were available with the most recent available AUM. All U.S. fixed income managers that submit data to eVestment Alliance are included in the analysis except where omission of returns by the managers necessitates exclusion. Corporate spread changes are shown on an inverted basis to reflect the inverse relationship between the yields and prices of bonds. Both return streams are shown on a rolling one-year basis. For the bottom chart, returns are shown through the most recent quarter end for the Dow Jones Credit Suisse Hedge Fund index and Bridgewaters proprietary index of beta streams. Beta streams are based on representative indices; where indices are not available, proprietary indices, based on Bridgewaters understanding of hedge fund strategies and global financial markets, are used.
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All Weather Strategy Performance (Net of Fees) All Weather Total Return in USD 18.4% Last 1 Year 2.4% Last 3 Years 5.4% Last 5 Years 7.9% Last 10 Years Annualized Returns (Jun-96 through May-11)
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PORTFOLIO NOTES
This page contains the allocation information for the historical simulation of the Traditional Asset Allocation, from 1970 onwards, as well as forward looking assumptions for expected returns, volatility, tracking error, and correlations used in this analysis. The portfolio capital allocation weights (illustrated below) are estimates based either upon Bridgewater Associates understanding of standard asset allocation (which may change without notice) or information provided by or publicly available from the recipient of this presentation. Asset class returns are actual market returns where available and otherwise a proxy index constructed based on Bridgewater Associates understanding of global financial markets. Information regarding specific indices and simulation methods used for proxies is available upon request (except where the proprietary nature of information precludes its dissemination). Results are hypothetical or simulated and gross of fees unless otherwise indicated. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
Alpha Alpha Alpha AlphaAlphaAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsseAsset Exposure Type AlphaAlphaAlphaAlphaAlpha Inflation-Linked Bonds Inflation-Linked Bonds Nominal Govt Bonds Nominal Govt Bonds U.S. Gov't Bonds (Extended)
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.70 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.15 0.20 0.80 1.00 0.20
Corporate Bonds
Corporate Bonds
Correlation matrix, Sharpe ratios and return expectations based on Bridgew ater assumptions. Beta volatilities estimated using historical data from the period 01/01/1970 05/01/2011.
Commodities
Hedge Fund
Real Estate
Asset Class
Exposure ExposureAsset Class Alpha Alpha Alpha Alpha Alpha Alpha Alpha Alpha Alpha Alpha Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Asset Corporate Bonds Equities Equities Equities Equities Hedge Fund Inflation-Linked Bonds Mortgages Nominal Govt Bonds Real Estate Commodities Corporate Bonds Currency Currency Currency Currency Currency Currency Currency Currency Currency Currency Currency Currency Equities Equities Equities Equities Inflation-Linked Bonds Mortgages Nominal Govt Bonds Real Estate Exposure U.S. Corporate Bonds (Extended) U.S. Large-Cap Equities (Extended) U.S. Private Equity / VC (Extended) U.S. Small-Cap Equities (Extended) World Equities Ex-US (Extended) Cash U.S. IL Bonds (Extended) U.S. MBS (Extended) U.S. Gov't Bonds (Extended) U.S. Real Estate (Extended) Commodities (GSCI - Extended) U.S. Corporate Bonds (Extended) AUDvsUSD CADvsUSD CHFvsUSD DKKvsUSD EURvsUSD GBPvsUSD HKDvsUSD JPYvsUSD NOKvsUSD NZDvsUSD SEKvsUSD SGDvsUSD U.S. Large-Cap Equities (Extended) U.S. Private Equity / VC (Extended) U.S. Small-Cap Equities (Extended) World Equities Ex-US (Extended) U.S. IL Bonds (Extended) U.S. MBS (Extended) U.S. Gov't Bonds (Extended) U.S. Real Estate (Extended) Allocation Return 2.30% 20.00% 3.00% 5.00% 14.00% 5.00% 3.00% 4.60% 4.60% 5.00% 2.00% 4.60% 0.69% 1.05% 0.91% 0.08% 4.26% 3.19% 0.22% 3.05% 0.11% 0.03% 0.30% 0.11% 40.00% 3.00% 5.00% 14.00% 3.00% 9.20% 9.20% 5.00% 0.75% 1.00% 2.50% 1.50% 1.80% 4.90% 0.25% 0.50% 0.50% 1.50% 5.95% 2.22% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 4.25% 5.90% 5.15% 5.24% 1.49% 1.77% 1.62% 5.11% Volatility 3.00% 4.00% 10.00% 6.00% 6.00% 7.00% 1.00% 2.00% 2.00% 6.00% 23.79% 8.87% 12.28% 6.65% 13.93% 12.83% 13.00% 11.56% 5.00% 13.38% 11.73% 14.86% 12.50% 5.50% 16.99% 23.60% 20.58% 17.47% 5.97% 7.09% 6.48% 20.46% Ratio 0.25 0.25 0.25 0.25 0.30 0.70 0.25 0.25 0.25 0.25 0.25 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.25 0.25 0.25 0.30 0.25 0.25 0.25 0.25
1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 1.00 0.40 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00
0.00 0.40 1.00 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00
0.00 0.40 0.40 1.00 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00
0.00 0.40 0.40 0.40 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.20 0.20 -0.10
0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.30 0.00 0.80 0.70 0.40
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00
0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.20 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 1.00 0.75
0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.20 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 1.00 0.75
0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.20 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 1.00 0.75
0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.20 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00
-0.10 -0.20 0.80 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.15 0.10 1.00 0.80 0.10
0.75 -0.20 0.75 -0.20 0.75 -0.20 1.00 -0.15 0.15 0.15 0.45 -0.15 1.00 0.10 0.20 0.00
0.00 -0.20 -0.20 -0.20 0.00 0.00 0.00 0.20 0.20 0.60 0.20 0.20 0.60 0.20 0.20 0.60
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NOKvsUSD
SGDvsUSD
GBPvsUSD
CHFvsUSD
NZDvsUSD
AUDvsUSD
EURvsUSD
CADvsUSD
HKDvsUSD
DKKvsUSD
SEKvsUSD
JPYvsUSD
Cash
Real Estate
Mortgages
Mortgages
Currency
Currency
Currency
Currency
Currency
Currency
Currency
Currency
Currency
Currency
Currency
Currency
Equities
Equities
PORTFOLIO NOTES
This page contains the allocation information for the historical simulation of the Traditional Asset Allocation prior to 1970. The portfolio capital allocation weights (illustrated below) are estimates based either upon Bridgewater Associates understanding of standard asset allocation (which may change without notice) or information provided by or publicly available from the recipient of this presentation. Asset class returns from January 1920 to the present are actual market returns where available and otherwise a proxy index constructed based on Bridgewater Associates understanding of global financial markets. Information regarding specific indices and simulation methods used for proxies is available upon request (except where the proprietary nature of information precludes its dissemination). Results are hypothetical or simulated and gross of fees unless otherwise indicated. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
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Bridgewater All Weather Strategy Gross Performance Disclosure: For the period June 1996 (the inception of the strategy) through August 2001 the performance is based on the total return of the Bridgewater All Weather Strategy as implemented for Bridgewater's principals and their affiliates and was not fully hedged to the US Dollar. The All Weather Strategy currently is fully hedged, and the performance reflected after August 2001 includes these hedging transactions. For the period of August 2001 through present the performance shown is the actual total returns of the longest running fully funded All Weather account. For the entire history excess returns are calculated by subtracting the cash return of the US repo rate from the total returns described above. Of note, the All Weather Strategys target leverage, volatility and return, as well as the asset mix varied from June 1996 to July 2005. From August 2005 through the present the strategy has targeted 10% volatility, albeit adjusting target leverage, volatility, return and the asset mix during extreme recessionary or depressionary economic environments. Bridgewater manages additional All Weather portfolios not included in this performance history.
The performance provided is gross of management fees and includes the reinvestment of all interest, gains, and losses. Returns will be reduced by the investment advisory fees and any other expenses that may be incurred in the management of the account. Investment advisory fees are described in Part II of Bridgewaters Form ADV. No representation is being made that any account will or is likely to achieve returns similar to those shown. Trading in futures is risky and can result in losses as well as profits. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Bridgewater All Weather Strategy Net Performance Disclosure: For the period June 1996 (the inception of the strategy) through August 2001 the performance is based on the total return of the Bridgewater All Weather Strategy as implemented for Bridgewater's principals and their affiliates and was not fully hedged to the US Dollar. The All Weather Strategy currently is fully hedged, and the performance reflected after August 2001 includes these hedging transactions. For the period of August 2001 through present the performance shown is the actual total returns of the longest running fully funded All Weather account. For the entire history excess returns are calculated by subtracting the cash return of the US repo rate from the total returns described above. Of note, the All Weather Strategys target leverage, volatility and return, as well as the asset mix varied from June 1996 to July 2005. From August 2005 through the present the strategy has targeted 10% volatility, albeit adjusting target leverage, volatility, return and the asset mix during extreme recessionary or depressionary economic environments. Bridgewater manages additional All Weather portfolios not included in this performance history.
The performance provided is net of fees and includes the reinvestment of all interest, gains, and losses. The net of fees returns have been calculated using our standard fee schedule for a minimum size account, which are the highest fees we have or would currently charge an account. Investment advisory fees are described in Part II of Bridgewaters Form ADV. No representation is being made that any account will or is likely to achieve returns similar to those shown. Trading in futures is risky and can result in losses as well as profits. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Performance as of the current month is estimated and subject to change.
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All Weather Simulated Portfolio Note: Prior to June 1996, All Weather is simulated and gross of all fees (including investment management fees). All Weather is constructed using a proprietary mix and weighting of assets. The returns used to construct All Weather are actual market returns where available and Bridgewater Associates' estimates otherwise. Bridgewater Associates' estimates for various market returns are based on Bridgewater Associates' understanding of global financial markets and may change without notice. The benchmark cash return is defined as the Repo rate since 1991 and prior to 1991 the lesser of the 3 month T-bill times 1.05 and the 3 month Euro rate. Simulated Performance Disclosure: WHERE SHOWN, HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. Terminology: Value added (or excess return) is calculated by subtracting the official returns of each account's specified benchmark from the total return experienced by the account over a given period.
Volatility of value added (or tracking error) refers to the standard deviation of monthly value added over a given time period. Standard deviation of monthly value added is one possible measurement of portfolio risk. Past value added and past volatility are not necessarily indicative of future value added and future volatility. There can be no assurance that the future value added and future volatility actually reflected in accounts will be at historical levels or levels either specified in the investment objectives or suggested by our forecasts. Target volatility (or target tracking error) is an indication of the long-term expected volatility of value added. Sharpe ratio is calculated by dividing the excess return above cash over a given period by the volatility of the excess return during the same period. Information Ratio is calculated by dividing the excess return above a given benchmark over a given period by the volatility of the excess return during the same period. Alpha: The risk taken by active managers above and beyond their passive, benchmark-replicating positions. Beta: The risk in a portfolio that arises from passively holding asset classes. Portfolio VaR: A measure of the amount of a total portfolios risk, taking into consideration correlations within and across asset classes. Var Share: A measure of the portion of a total portfolios risk allocated to a particular return stream when all of its return streams are assumed to be fully correlated to each other. CoVar Share: A measure of the portion of a total portfolios risk allocated to a particular return stream when the cross correlations of all of the return streams are taken into account. Drawdowns: Where shown, drawdowns are from previous peak.
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Expected Performance Disclosure: The performance is for informational and educational purposes only and should not be relied upon as a prediction of future market performance or Bridgewater management performance. Reasonable people may disagree with the assumptions used and expectations developed there from and there is no guarantee the expectations shown can be achieved. Expected or forward looking performance is based on Bridgewater analysis of market data, quantitative research of the underlying forces that influence asset classes and our active management policies. Expected performance is considered hypothetical and is subject inherent limitations such as the impact of concurrent economic or geo-political elements not addressed in the analysis and market factors, such as lack of liquidity. Bridgewater Associates, its Strategies and/or employees may have long or short positions in and/or buy or sell securities or derivatives referred to or implied in this research. There is no guarantee that such a scenario, and the impact on any given account or Strategies, would not be considered detrimental in nature when similar mandates are compared in isolation. Additionally, where Strategies are traded similarly performance may materially diverge based on, among other factors, the approved instruments, markets, and target risk for each Strategy or market. In the event of any discrepancy between the information and expectations presented herein and the actual language in the Offering Memorandum ("OM"), the OM shall prevail. Volatility Disclosure: Expected or target volatility is one objective of Bridgewater's active management style. Statements regarding expectations or targets should not be considered a guarantee that such results will be achieved. Expected or target volatility is only one measure of risk. Discussions of risk management processes or theories contained herein should not be construed as a statement that Bridgewater has the ability to control risk or that the investments discussed are low risk. Individually Managed Accounts: Individually managed account performance will vary based on constraints, funding levels and other factors. Research/Outlook Disclosure: Bridgewater research utilizes (in whole and in part) data and information from public, private, and internal sources. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. External sources include International Energy Agency, International Monetary Fund, National Bureau of Economic Research, Organisation for Economic Co-operation and Development, United Nations, US Department of Commerce, World Bureau of Metal Statistics as well as information companies such as BBA Libor Limited, Bloomberg Finance L.P., CEIC Data Company Ltd., Consensus Economics Inc., Consumer Metrics Institute, Credit Market Analysis Ltd., Ecoanalitica, Emerging Portfolio Fund Research, Inc., Global Financial Data, Inc., Global Trade Information Services, Inc., Hewitt Associates, LLC, Intex Solutions, Inc., Markit Economics Limited, Mergent, Inc., Moodys Analytics, Inc., MSCI, RealtyTrac, Inc., RP Data Ltd., Standard and Poors, Thomson Reuters, TrimTabs Investment Research, Inc. and Wood Mackenzie Limited. While we consider information from external sources to be reliable, we do not assume responsibility for its accuracy.
The views expressed are solely those of Bridgewater Associates, LP and are subject to change without notice. Reasonable people may disagree. You should assume that Bridgewater Associates, LP has a significant financial interest in one or more of the positions and/or securities or derivatives discussed. Bridgewater Associates, LP employees may have long or short positions in and buy or sell securities or derivatives referred to in this research. Those responsible for preparing this research receive compensation based upon various factors, including, among other things, the quality of their work and firm revenues. The research in this presentation is for informational and educational purposes only and is not an offer to sell or the solicitation of an offer to buy the securities or other instruments mentioned. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Investors should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, where appropriate, seek professional advice, including tax advice. Investment decisions should not be based solely on simulated, hypothetical or illustrative information. The price and value of the investments referred to in this research and the income therefrom may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Bridgewater Associates has no obligation to provide recipients hereof with updates or changes to such data. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Bridgewater Associates, LP.
ERISA Investors: None of the advice or recommendations related to the overall portfolio that Bridgewater may provide is intended to form the primary basis for any investment decisions with respect to the plans assets. Recommendations and advice should be independently evaluated based on whatever other sources deemed appropriate, including legal and tax advice. Bridgewater may recommend one or more Bridgewater products in connection with our advice and recommendations, which would result in additional fees being paid to Bridgewater. Bridgewaters status as an ERISA fiduciary with respect to the management of any existing or future Bridgewater product(s) in which you invest would be (or continue to be) set forth in that products applicable governing instruments.
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Agenda Item 5b
DEPARTMENT OF THE TREASURY DIVISION OF INVESTMENT P.O. BOX 290 TRENTON, NJ 08625-0290
SUBJECT:
SIS will make a presentation on the Venture Capital market. The presentation materials follow this cover.
New Jersey Is an Equal Opportunity Employer Printed on Recycled and Recyclable Paper