How Does the World’s Largest Hedge Fund Really Make Its Money?

“What was he even talking about?” he vented afterward.

The financial analyst Jim Grant, the self-styled “prophet of reason,” watched the interview with amazement. He had an arcane newsletter, Grant’s Interest Rate Observer, which was popular in the sense that many serious investors claimed to read it.

Mr. Grant for years had privately mulled dark questions about Bridgewater. He assigned his top deputy to dig in. They fanned out widely, scrutinizing the firm’s public filings, and furtively talking to anyone who might have a clue as to what was going on. They were inundated with “all sorts of people winking and nodding,” Mr. Grant recalled, “that there’s something really, really wrong.” In October 2017, Mr. Grant devoted a full issue of his publication solely to Bridgewater, and the themes of “distraction, sycophancy” and “mystery.”

The newsletter claimed a litany of issues. Shareholders in Bridgewater’s parent company — a group that includes employees and clients — didn’t automatically receive copies of the firm’s financial statements. Five separate Dalio family trusts appeared to each hold “at least 25 percent but less than 50 percent of Bridgewater, something that seems mathematically difficult,” the newsletter said. Per public disclosures, the hedge fund lent money to its own auditor, which struck the longtime analyst as precarious and unusual. “We will go out on a limb, Bridgewater is not for the ages,” the newsletter concluded.

At 8:30 p.m. the day the report was published, Mr. Grant settled in on the couch at home with his wife to watch a New York Yankees game. When his home phone rang from an unknown Connecticut number, Mr. Grant let the call go to voice mail. Not until about a half-hour later did his wife hear a distant beep. She walked over and hit play on the machine, putting the message on speakerphone. Mr. Dalio’s voice, measured and calm, rang out:

“I’m not sure if you’ve seen the current issue of Grant’s,” Mr. Dalio said, according to Mr. Grant. Mr. Dalio’s message went on for nearly a half-hour detailing his complaints about the piece.