Jim Grant, author of Grant's Interest Rate Observer, first hinted last week that not all is well when it comes to the world's biggest hedge fund, Ray Dalio's $160 billion Bridgewater (of which one half is the world's biggest risk-parity juggernaut). Speaking to Bloomberg last week, Grant said he was "bearish" on Bridgewater because founder Dalio has become "less focused on investing, while the firm lacks transparency and has produced lackluster returns."

Grant slammed Dalio's transition from investor to marketer, and in a five-page critique of the world’s largest hedge fund, said Dalio has been preoccupied with his new book, sitting for media interviews and sending Tweets.

“Such activities have one thing in common: They are not investing,” Grant writes in the Oct. 6 issue of his newsletter. “Yet here he is, laying it all out to the world again, Tweeting, promoting his book, attacking the press -- necessarily doing less of his day job than he would otherwise do.”

Grant continued his scathing critique, accusing Bridgewater of "lately performed no better than the typical hedge fund.” Grant is right: since the start of 2012, Bridgewater’s Pure Alpha II Fund has posted an annualized return of 2.5% vs its historic average of 12%, and is down 2.8% this year through July.

The underperformance may be explainable: after all the polymath billionaire has been busy opining in recent months on subjects from the rise of populism to his affinity for China, "which are distraction from making money" Grant said.

But if Grant had limited himself to merely Dalio's stylistic drift, it would be one thing: to be sure, the fund's billionaire founder may simply have lost a desire to manage money and has instead discovered a flair for writing books and being in the public spotlight.

However, Grant - or rather his colleague Evan Lorenz - went deeper, and as he writes in the latest Grants letter, he raises several troubling points, which go not to the hedge fund's recent underprofmrance - which can be perfectly innocuous - but implicitly accuse the world's biggest hedge fund of borderline illegal activities and, gasp, fraud. Some of the more troubling points brought up by Lorenz are the following:

Bridgewater has directly lent money to its auditor, KPMG, to which KPMH's response is that “these lending relationships . . . do not and will not impair KMPG’s ability to exercise objective and impartial judgment in connection with financial statement audits of the Bridgewater Funds.”

Bridgewater has 91 ex-employees working at its custodian bank, Bank of New York .

. Only two of Bridgewater's 33 funds have a relationship with Prime Brokers. In these two funds, Bridgewater Equity Fund, LLC and Bridgewater Event Risk Fund I, Ltd., 99% of the investors are Bridgewater employees.

Opaque ownership concerns: "Two entities—Bridgewater Associates Intermediate Holdings, L.P. and Bridgewater Associates Holdings, Inc.—are each noted as holding 75% or more of Bridgewater."

Why the massive, and expensive, ETF holdings: "The June 30 13-F report shows U.S. equity holdings of $10.9 billion. The top-16 holdings, worth $9.5 billion, or 87% of the reported total, come wrapped in ETFs, including the Vanguard FTSE Emerging Markets ETF, the SPDR S&P500 ETF Trust and the iShares MSCI Emerging Markets ETF . Beyond the fact that Bridgewater reports holding few U.S. equities, you wonder why such a sophisticated shop would stoop to such a retail stratagem. Surely the Bridgewater brain trust could replicate the ETFs at a fraction of the cost that the Street charges."

. Beyond the fact that Bridgewater reports holding few U.S. equities, you wonder why such a sophisticated shop would stoop to such a retail stratagem. And perhaps most troubling, is the SEC in cahoots with Bridgewater? "Lorenz asked the SEC how Bridgewater’s answers comply with the requirement to “[p]rovide your fee schedule.” Via email, the agency replied, “Decline comment, thanks.”

And so on. There is much more in the full Grant's note, which readers can read by subscribing at Grant's website, but here are some of the key questions posed:

That phenomenal track record:

Dalio has done his best work in the shadows. In a 1982 Wall Street Week interview, he predicted not the great bull market but a new calamity (the erroneous call nearly bankrupted Bridgewater). In a 1992 Barron’s article, he wrote that the country was in a depression and that it would be hard-pressed to escape from it. From 1996 through Aug. 30, 2017 the Wasatch-Hoisington U.S. Treasury Fund has returned a compound 7.9% net of fees. Over the same span, according to a Sept. 8 article in The New York Times, All Weather returned an identical 7.9% net of fees.

Dalio's sudden infatuation with the public spotlight...

Principles is the first of a projected two-volume work on the theory and practice of radical transparency and abrasive truth-telling. The second installment will provoke more controversy and another time-out from the author’s day job. There will be reviews to stew over, angry emails to compose, interviews to be conducted. Since Dalio took to Twitter on April 24, he has tweeted 97 times. He has written 24 blog entries, amounting to a grand total of 22,112 words, on LinkedIn (Harrison Waddill of this staff has counted them). Beyond the April TED talk, Dalio is on the interview circuit. He has addressed reporters at Business Insider, Bloomberg, CIO Magazine, The New York Times and ValueWalk, among others. In January he attended the annual World Economic Forum in Davos, Switzerland. In that pleasant alpine setting, the billionaire worried about the rise of populism.

... even as Bridgewater is covered in secrecy:

The New York Times, recently at work on a story about Bridgewater, submitted a request under the Public Information Act of Texas for details that Bridgewater would rather not have disclosed. The CFO of Bridgewater, Nella Domenici, registered the firm’s objections in a June 5 affidavit: “These documents contain information that constitutes private, valuable and commercially sensitive trade secrets that, if disclosed, would substantially harm Bridgewater’s ability to compete in the marketplace.” And what data, exactly, did Domenici worry about divulging? The list includes “fee structure,” “litigation exposure,” “related party information” and “debt structure, including sensitive, non-public information pertaining to our existing financing,” among other items. Why the world’s largest and most successful hedge fund, headed by the world’s 54th richest person, has a “debt structure” at all is a good question. The watchful Paul J. Isaac, CEO and founder of Arbiter Partners Capital Management, read the affidavit and emailed his reactions: “Remarkable and a bit inexplicable. Bridgewater presumably raises a great deal of money from public bodies. There is an implicit assumption here that ‘sunlight’ rules that apply to a host of public relationships should not apply to Bridgewater.”

On its bizarre investment style:

There are further enigmas. The June 30 13-F report shows U.S. equity holdings of $10.9 billion. The top-16 holdings, worth $9.5 billion, or 87% of the reported total, come wrapped in ETFs, including the Vanguard FTSE Emerging Markets ETF, the SPDR S&P500 ETF Trust and the iShares MSCI Emerging Markets ETF. Beyond the fact that Bridgewater reports holding few U.S. equities, you wonder why such a sophisticated shop would stoop to such a retail stratagem. Surely the Bridgewater brain trust could replicate the ETFs at a fraction of the cost that the Street charges.

The potential conflict of interest involving Bridgewater's auditor:

The “related party information” schedule of the Bridgewater ADV form records the fact that Bridgewater lends money to its auditor, KMPG, LLC. Or, more precisely, Bridgewater owners with a greater- than-10% ownership stake in the Dalio firm are creditors to KMPG. Long legal sentences parse this curious relationship, for it would seem to fly in the face of the SEC’s Rule 2-01(c) (1)(ii)(A) of Regulation S-X, known as the Loan Rule. This rule prohibits an auditor from borrowing from an auditing client. Or that’s what it appears to say. Investigation and ponderation lead Bridgewater and KMPG to conclude that the Loan Rule does not apply to them in this instance. (Fidelity Management & Research Co. got itself a non-action letter from the SEC for a very similar harmless and inconsequential lender-creditor relationship, the document explains.) Leaving no stone unturned, KMPG likewise consulted its conscience. The verdict here, too, was favorable, because “these lending relationships . . . do not and will not impair KMPG’s ability to exercise objective and impartial judgment in connection with financial statement audits of the Bridgewater Funds.” It’s as if Dalio & Co. had never lent the auditor a dime (just how much money was lent and at what rate of interest go unmentioned).

The potential conflict of interest involving Bridgewater's custodian:

“After reading that footnote,” Lorenz observes, “an investor may take a measure of solace from the fact that the custodian of many Bridgewater funds is Bank of New York Mellon Corp., the world’s largest custodian bank. An investor may take less comfort from the fact that many of the BoNY employees working on the Bridgewater account are, in fact, former Bridgewater employees. In December 2011, Bridgewater signed a deal with Alexander Hamilton’s old bank: Bridgewater fired 91 back-office employees; BoNY hired these 91 practitioners of radical transparency to work Bridgewater’s books in an outsourcing contract.”

The complete lack of (non-fonclicted) prime brokers:

“As you scroll through the 206 pages of part one to Bridgewater’s filing, you might notice other oddities,” Lorenz goes on. “Only two of the 33 funds have relationships with prime brokers: Bridgewater Equity Fund, LLC and Bridgewater Event Risk Fund I, Ltd., in which 99% of the investors are Bridgewater employees.” Prime brokers perform a variety of helpful hedge-fund services. They act as a central clearing house through which to settle trades (useful for reducing collateral requirements by netting positions). They lend securities to allow a client to sell short. They furnish margin debt. The brokers earn various fees, including those generated by rehypothecating margined portfolios. Longonly funds or unleveraged funds have little need for such accommodation, but Bridgewater’s funds hardly match those descriptors. Pure Alpha strategies go long and short and All Weather famously leverages its bond portfolios.

The potential conflict of interest involving the company's fee structure and the SEC:

Registered investment advisors are under the annual obligation to file Form ADV with the U.S. Securities and Exchange Commission. On this document are recorded management fees, among other facts and figures. The SEC’s instructions for the fee section of the report are plain and simple: “Describe how you are compensated for your advisory services. Provide your fee schedule. Disclose whether the fees are negotiable.” Renaissance Technologies, LLC, no more welcoming to prying eyes than Bridgewater, complies with that directive. So does risk-parity competitor AQR Capital Management. They note the performance and management fees (or range of fees) charged for each strategy managed as a percentage of net profits and assets under management. Dalio & Co. opts for a qualitative approach, as if the SEC were suggesting a course of action rather than, say, requiring it: “Bridgewater offers fee arrangements which vary by strategy and may involve management fees (generally a percentage of assets), performance fees (generally a percentage of profits) or some combination of the two. For new client relationships, Bridgewater’s standard minimum fee is expected to be $500,000 for its All Weather strategy, $4,000,000 for its Pure Alpha and Pure Alpha Major Markets strategies, and $2,700,000 for Optimal Portfolio.” No percentage of assets or profits is vouchsafed. Lorenz asked the SEC how Bridgewater’s answers comply with the requirement to “[p]rovide your fee schedule.” Via email, the agency replied, “Decline comment, thanks.”

The odd complaints against the company's home-grown technology:

To credit the thrust of numerous comments from employees on the review website GlassDoor.com, Dalio would be better advised to worry about the fall of technology—his own. There’s a wide range of opinions on Bridgewater, of course. Some bristle under the unique culture. Others love it. One constant complaint is the poor quality of the company’s IT. Thus, from a March 19, 2017 posting: “If you are an engineer or technologist, working here will be negative value added to your learning process. Like taking a step into a parallel dimension where open source never existed and Excel and badly designed home grown software are the solution to all problems.”

Which brings us to Grant's ominous conclusion: "Many are the mysteries and contradictions of the world’s largest hedge fund. We will go out on a limb: Bridgewater is not for the ages."

To which one can counter: will Bridgewater be one for the Harry Markopoloses, and if so, when will Dalio's own day of reckoning come?

There is much, much more in the full note, to read it please go to Grant's website.