Employees at the world’s largest hedge fund, Bridgewater Associates, are apparently on a path to vote between Ray Dalio, 66, the firm’s founder and spiritual leader, and Greg Jensen, 42, co-CEO who oversees Bridgewater’s research and trading and is the heir apparent to the noncorrelated investing throne. At issue appears to be a violation of a founding principle laid down by Dalio. In a statement sent to ValueWalk late Friday afternoon, both Dalio and Jensen disputed the characterizations made in the original Wall Street Journal report and said this radical process is what drives success.

Core Bridgewater principle violated as heir apparent talk's behind founder's back and is caught on tape

Bridgewater employees will soon decide if Jensen has “integrity” to lead the firm while Dalio will be assessed on his 2011 promise of a succession plan, according to a report in The Wall Street Journal by Rob Copeland and Bradley Hope.

“The question here about Greg is whether he said things about me on tape in our meetings that he did not discuss with me before,” Dalio told The Wall Street Journal earlier today. The company is guided by a set of 210 principles, many of which center on the concept of only saying something to a person's face that you say behind their back. Jensen characterized the dispute as “healthy” and following the Bridgewater system has “resulted in the incredible working relationships that have made Bridgewater so successful.”

In a statement sent to ValueWalk, Dailio called the article a "sensationalist mis-characterization" and said this was just an example of what makes the world's most successful hedge fund unique:

The article is a sensationalist mis-characterization of what is going on. Greg and I have had lots of disputes over the last 20 years, and what's great is that we have a systematic process for working ourselves through them. This particular dispute has already been resolved via our process and Greg and I both expect to work together, probably for the rest of our careers. More importantly, we have a fabulous community of people who wouldn't work anywhere else because they treasure having the radical transparency into such things, so that they know that there's no spin and no closed door, back-biting politics. I recognize that it's difficult for people who aren't in our culture to understand it, and I understand that distorted gossiping about it is going to occur. It's regrettable that the Wall Street Journal isn't above that. I encourage people who are interested in understanding our culture to go to Principles.org so that they can read our principles directly.

Jensen said the intellectual confrontation was part of what delivers success, which is what matters most:

This story is getting blown out of proportion.Both Ray and I are committed to Bridgewater. Ray and I have had (and will have) many disagreements. We have a process for handling them and both of us believe that process is working well. It is through this unique culture of open disagreement that we have produced the meaningful work and meaningful relationships that those who work here and our clients have come to expect. This has been the key to our investment success as well as our success as a community.

A statement from Bridgewater itself states:

The Wall Street Journal also did not paint an accurate picture of performance or demand from our clients for our investment products. Specifically, they chose to say that "Bridgewater has stumbled a bit lately. For the first time in more than a decade, the firm manages fewer assets than it did a year earlier." Let's look at that stumble and reduction in assets to see whether it was well-characterized. Last year's net return of Pure Alpha was +4.7% compared to the average hedge fund net return of -3.5% (HFRX Global) and much better than a number of great managers having a significant losing year. Concerning the small reduction in assets (down only 2%) the Wall Street Journal knew and chose not to explain that that decline was due to investors choosing to move into investment vehicles that required them to put up less equity to have the same exposures, such that investors actually increased their exposure to Bridgewater rather than reducing it.

Employee vote to take place shortly amid truly "radical transparency"

It is unclear if the vote will be binding or rather just an expression of employee thought, but the questioning of someone’s ethics in front of an entire company through a vote is likely a first in the history of a major U.S. firm, if that is what occurred.

The sharp divide at the privately held company is unusual even for Bridgewater, which has prided itself on the concept of “radical transparency” and has been known for its culture of independent thinking. As previously reported in ValueWalk, the concept of intellectual confrontation at Bridgewater over investment ideas finds holes in logic and has led to investment ideas that often run counter to the mainstream.“In order to have a good opinion that is valued you need to have an opinion that is different from the crowd, because the crowd is reflected in the prices,” Dalio said in 2014.

Dalio maintains that such a work environment leads to the best investment output, and the firm’s industry leading noncorrelated investment performance is a bi-product.

Questioning sensitive Ivy League academic egos can lead to conflict

The questioning of establishment thoughts can lead to bruised egos, particularly among an academic elite who are recruited out of school and provided education on how a business should operate. Nearly 25% of new recruits leave after the first year and a half, unable to transition into a radical method of transparency that at times offends societal ethos for “polite” behavior.

Critics have charged Bridgewater with being “cultish” and engaging in odd rituals following principles guiding employee’s behavior and thought processes. "Remember that convincing people of their strengths is generally much easier than convincing them of their weaknesses," is one principle. "Don’t worry if your people like you; worry about whether you are helping your people and Bridgewater to be great," is another.

The company, which has a goal to operate like a machine, has a “pain button” that allows employees to express their attitudes on working at the firm, while a “believability index” weights how much an individual opinions are given in debates and polls, with those who are at the bottom of the “believability” scale visible to every employee. Such radical transparency isn't just unique to Bridgewater, but to society as a whole that seldom expresses such truth in public.

Bridgewater has always been known in derivatives circles as having strong quantitative investing logic, and the firm recently announced it was working on algorithmic decision models for how behavior is conducted around the office. A new application, available on the employee’s iPad along with other applications, is a “Dispute Resolver.” When complete the computer will mediate a dispute without emotional attachment or discretionary bias. The systematic application will suggest solutions to disputes and, if necessary, recommend escalation to a mediator, the Journal reported, citing a person familiar with the matter.

Read the full Bridgewater principles here.