- Warren Buffett handily won the bet he entered against hedge funds in 2007.
- Buffett has written against hedge funds’ hefty fees and their promise of outperformance.
- During the bet from 2008 through 2017, the S&P 500 index fund Buffett picked gained 125.8%, versus 87.7% for the top-performing fund of funds that was part of the bet.
It’s brutal – for the hedge funds.
Buffett entered the bet as a sort of protest against the hefty fees that hedge funds charge clients for the promise of outperformance. The fees – typically 2% of the investment’s value and 20% of the profits – eat into clients returns, Buffett argued, and said returns do not typically justify those fees compared to the returns an investor could get from a low-cost S&P 500 index fund.
The table below shows just that. The S&P 500 index fund gained 125.8% from 2008 through 2017, versus 87.7% for the top-performing fund of funds that was part of the bet.
In last year’s letter, Buffett said Jack Bogle, the Vanguard Group founder considered to be the father of indexing, was the person who had done the most for American investors.
“In his early years, Jack was frequently mocked by the investment-management industry,” Buffett said last year. “Today, however, he has the satisfaction of knowing that he helped millions of investors realise far better returns on their savings than they otherwise would have earned.”
Business Insider is covering every angle of Warren Buffett’s letter:
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