Warren Buffett Challenge Hedge Fund

Warren Buffett has always been of the opinion that hedge funds charge their client’s exorbitant fees. He believes the performance of the hedge funds does not justify the charges. In 2008 he entered into a bet with the hedge fund industry. Protégé Partners agreed to a bet that would last ten years. Each party placed one million dollars for the bet. Ten years later, Warren Buffett had won the bet which Protégé co-founder even conceded long before it was over. Warren was right about hedge funds.

Warren Buffett placed a bet that S&P 500 index fund would perform better than a hand-picked hedge fund in 10 years. Through this bet, Warren Buffett wanted to prove that passive investing could be profitable in the long term than active investing. Although Warren considers himself an active investor, he believes it is not everyone’s cup of tea.

The bet was not an outright win for Buffett right from the beginning as many people would like to think. In 2008, when the global recession took place, Buffett index fund tan more than the hedge funds. Actually. The hedge funds started out strongly than Buffett index fund. From 2009 to 2014 Buffett took over. He performed better, but that did not mean that he was ahead of them in overall figures. It took him four years to overtake them. In 2015, he lagged behind Protégé by a small margin. However, in 2016, he made a huge lead that knocked protégé out of the competition. Buffett hedge fund gained 11.9% while Protégé gained 0.9%.

In his annual letter after winning the competition, he appreciated the skills of the hedge funds but took a swipe at them for performing dismally. He believes the returns these hedge funds make are not worth the fees they charge. Their performance is dismal to allow for a 20% cut from the profits and 2% management fee.

Leave a Reply

Your email address will not be published. Required fields are marked *