Buffett handily won the bet, with his index fund returning 60% more than Protege's basket of funds.īuffett's bet is broadly representative of the sentiment towards hedge funds in the current bull market. In 2007, Warren Buffett famously bet Ted Seides of the fund of funds Protege Partners $1M that the Vanguard S&P 500 index fund would outperform a hand picked basket of five hedge funds over the next decade.
Many of the investing greats have also grown skeptical of active management. The 30 percent that do outperform can’t be identified before doing so even by the most expensive investment consultants. Recent research shows that even before fees, 70 percent of actively managed funds do not beat their benchmarks. Based on the evidence, this isn’t unreasonable. Unsurprisingly, a Google search for ‘death of hedge funds’ yields 900,000 results. Chronic underperformance, the rise of passive and quant strategies, and mounting pressure on fees have dogged the the sector, leading the most optimistic analysts to claim that active management is in secular decline. Investor sentiment towards the hedge fund industry has been overwhelmingly negative since the financial crisis.
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