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- Bridgewater’s legal battle with the small systematic-macro shop Tekmerion Capital spilled out into the public eye recently because Tekmerion’s lawyer is suing Bridgewater for attorney’s fees.
- The unsealed filings show how Bridgewater tried to stop Tekmerion, founded in 2017 by Bridgewater alumni Lawrence Minicone and Zach Squire, with allegations of intellectual-property theft and broken confidentiality contracts.
- One of the biggest focuses for Bridgewater in a 2017 arbitration filing was that Tekmerion’s 53-page pitch deck for prospective investors “closely resembled” Bridgewater’s.
- Business Insider pulled out the five slides from the pitch deck Bridgewater highlighted in the 2017 filing.
- Bridgewater has since been found by an arbitration court to have “manufactured false evidence” in its pursuit against the small fund and is appealing an order for the firm to pay Minicone and Squire’s legal fees.
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Bridgewater’s inner workings are an object of fascination within the finance industry and other fields, thanks to billionaire founder Ray Dalio’s “radical transparency” concepts of being directly honest in the workplace and with coworkers.
But the world’s biggest hedge fund is also known for strict confidentiality contracts with former employees, and recently unsealed documents from a yearslong legal battle with the small macro fund Tekmerion Capital Management show how aggressive the firm can be.
Tekmerion, founded by Bridgewater alumni Lawrence Minicone and Zach Squire and backed by former Goldman Sachs partner Michael Novogratz, was almost immediately on Bridgewater’s legal radar once the fund went live in 2017, according to a recent Institutional Investor story.
Minicone and Squire were investment analysts at Bridgewater but never ran their own portfolios.
One of the biggest cruxes of Bridgewater’s arbitration case against Tekmerion — named for Aristotle’s definition of the Greek word from his work “On Rhetoric” as an irrefutable sign or signal — was that the pitch deck the young firm used to market to prospective investors “closely resembled” Bridgewater’s, according to the filings. Bridgewater, however, declined to submit its own pitch deck into evidence to compare during the arbitration proceedings, according to a statement from Aaron Zeisler, a lawyer for Minicone and Squire.
Out of Tekmerion’s 53-page pitch deck, five slides were highlighted by Bridgewater’s legal team in a November 2017 arbitration filing that was recently made public. Business Insider pulled the five slides below and added Bridgewater’s allegations from the filing. The finding from the arbitrators can be found here.
An arbitration court found that Bridgewater “manufactured false evidence” in bringing its claim against the young fund and its cofounders, and awarded legal fees to the two founders of Tekmerion.
The hedge fund told Business Insider it was appealing the arbitrators’ decision that the fund has to pay for Minicone and Squire’s legal fees and pointed to the opinion of the one arbitrator who dissented from the case. That arbitrator said the majority’s findings were an “incomplete, inaccurate and one-sided summary of the evidentiary record.”
Zeisler, the lawyer for Minicone and Squire, said in a statement to Business Insider that “the panel of arbitrators found as a matter of fact that ‘Bridgewater refused to produce a copy of its marketing materials — its deck — but Jensen testified that TCM’s deck was ‘generally not the same’ as Bridgewater’s.’ Bridgewater’s latest legal filing does not contest any of these factual findings from the panel’s final, binding award, which denied all of Bridgewater’s claims.”
Slack measure versus output gap
Bridgewater’s slack-measure process is how the firm finds the datasets that most often correlate with different signals and market moves, a never-ending equation that requires constant monitoring and tinkering.
A slide from Tekmerion shows their version of that process, which Bridgewater says rips off its process, using the same language, like “estimate diagnostics.” The filing said Minicone worked on several research projects at Bridgewater related to the slack-measure process.
The arbitration court found that Bridgewater’s internal records showed Minicone was exposed to only 2% of the firm’s trade secrets. The experts Bridgewater called in the arbitration also sided with Tekmerion, saying Bridgewater mischaracterized what should be considered trade secrets.
Minicone was also involved in Bridgewater’s statistics-based growth-estimator tool while at Dalio’s firm, the filing claims, and replicated this tool for his new fund.
“Understanding the correct macro drivers for each asset is a starting point, but to beat the market you need to measure those drivers accurately and in real time, before the headline statistics are published,” the pitch deck reads.
Of course, every investment firm uses some mix of data and models to try and determine what will happen in the future, but Bridgewater alleged Tekmerion’s way of doing so directly copied its own.
The filing cites “substantial similarities” between estimates Tekmerion’s model produced and what Bridgewater’s model produced. Minicone, though, was not exposed to a vast majority of what Bridgewater considers its trade secrets, according to the findings of the arbitrators.
Once again, the experts called by Bridgewater in the arbitration proceedings thought Dalio’s firm misused the term trade secrets and found no evidence to support the firm’s claim.
How Bridgewater and Tekmerion find investment signals
One of the most important processes for an asset manager is how they find their investments, along with which signals they are monitoring to point them to opportunities.
Bridgewater alleged that Squire and Minicone, who worked on the tool at Bridgewater that finds and creates investment signals, created a replicate tool for their fund and that the “confidence percentages” shown in the slide were nearly identical to what Bridgewater’s tool would create.
The filing said Squire and Minicone had an in-depth look at different inputs for Bridgewater’s tool when they were a part of a team that created automated tasks on Microsoft Excel.
The arbitration filing said Bridgewater pulled back the claim on signals 10 days before the arbitration panel made a decision.
Squire was exposed to Bridgewater’s risk-management tool, the filing said, and Dalio’s firm said he recreated it for Tekmerion.
One example given in the filing is Tekmerion’s “Macro Risk Exposure” diagram in the slide. The filing said it was “functionally equivalent” to its “Covar capping” technique.
The pie charts in the slide, which Bridgewater claims are based on “information and belief,” are also nearly identical to how the firm measures risk across different macro signals, the filing said.
Bridgewater’s internal records, according to the arbitration filing, show that Squire had zero exposure to “trade secrets” while at Bridgewater. Further, Bridgewater’s experts found that the risk management procedures the firm claimed as trade secrets were actually generally available to the industry and well known.
Bridgewater’s short-rate trading technology
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Minicone worked on Bridgewater’s short-rate trading technology while at the firm, the filing said.
Bridgewater claimed the technology, using “proprietary” information, trades on the short-rate market based on investor confidence.
The slide’s chart, which shows investor confidence in blue against different returns in red, is again “substantially similar” to Bridgewater’s results, the claim said. Minicone, though, was not exposed to a vast majority of what Bridgewater considers its trade secrets, according to the findings of the arbitrators.