Warren Buffett is winning a $1 million bet against hedge funds.
Five years ago, Buffett bet that Vanguard's Admiral S&P index fund would perform better than five funds of hedge funds picked by Protégé Partners, a New York money management firm.
It's halftime in the $1 million game, and the Berkshire Hathaway CEO, known as the "Oracle of Omaha," has pulled ahead. The Vanguard index fund is up 8.69 percent. The hedge funds can boast of a performance of only 0.13 percent on average, according to Fortune.
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
Although the hedge funds were not named, it's been assumed that one is a fund run by Protégé itself, Fortune reports.
Both sides started the game in a hole. The index fund was in a deeper hole. The index fund was down 37 percent in 2008; the hedge funds were down an average 24 percent.
Buffett said he hoped the index fund would be like the tortoise racing against the hare. His hope may have come true.
The index fund gradually pulled ahead, rising almost 16 percent compared to the hedge funds' 6.46 percent gain in 2012.
Whoever wins won't keep the money. If Buffett wins, it will be donated to the Girls Inc. of Omaha. If Protégé wins, it goes to Absolute Returns for Kids.
A well-publicized defeat by an index fund would be a public relations embarrassment for hedge funds in general.
The HFRX Global Hedge Fund Index outperformed the Standard & Poor’s 500 in only one year, 2008, out of the last 10 years, indicating that hedge funds do not usually beat the market, notes Esquire magazine. They also charge high fees, typically 2 percent of money invested and 20 percent of profits.
"That’s wonderful for hedge fund managers and employees, but as Buffett’s bet proves today and will likely again five years from now, it’s not such a great deal for investors," says Esquire.
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
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