“Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”
That is the bet Warren Buffett made with New York fund manager, Ted Seides from Protege Partners, five years ago. The Oracle of Omaha (Buffett) put his money on a S&P index fund, while Seides has backed five fund of hedge funds.
At the end of 2017, the strategy with the best return (net of fees, costs and expenses), will come away with bragging rights. And the contribution by both of them of $1 Million will go to the winner’s charity of choice. If Buffett wins Girls Incorporated of Omaha will win the cash and if Seides wins Friends of Absolute Returns for Kids will come out $1 Million better off.
The details of the bet can be found at longbets.org.
So, halfway through the 10 year bet, where do they stand? Buffett’s position is up 8.69%, whilst the hedge fund strategy is lagging, being up only 0.13%. Looking back to the start of the bet, the hedge funds performed better in the first year, 2008. People following the deal have now been referring to Buffett’s strategy as the tortoise.
We are only halfway through the bet and with five years to go, who knows what will happen. However, it is instructive to note that the ‘sexy’ hedge fund strategy is not where the fund manager had hoped. Could it be that a well diversified portfolio will win the race. I recall a quote about “time in the market; not timing the market”.