Ray Dalio’s Famous Trade Is Sputtering and Investors Are Bailing

It was an irresistible pitch. Give us your money, executives at Ray Dalio’s Bridgewater Associates and other hedge funds said, and we’ll funnel it into a money-minting, sure-thing strategy for the long haul. But now, after five years of sub-par returns, many of the institutional investors who sunk large sums into risk-parity funds, as they’re known, are demanding the money back.

Investors including public pensions in New Mexico, Oregon and Ohio have yanked out cash, slashing the size of the funds by an estimated $70 billion from their peak three years ago. For many, the pleas from firms for ...