Buffett bets on hedge fund fees
Warren Buffett has long been a critic of the hedge fund industry and their high fees that eat into profits. Buffett made a bet with Protégé funds for a $1 Million charitable donation. Buffett said that the S&P 500 will return better than hedge funds over the next 10 years, highlighting their expenses of 2% of capital plus a 20% fee on returns.
What is more interesting than that is that Buffett might be putting a crimp in his own trading style. We could also take this as a signal that active investing probably won’t return as well as an index fund over the next 10 years. Its hard to beat an index and its even harder to beat an index when the market is how it is today.
It’s safe to say that Buffett’s most recent investments strike well with the most prudent of investors. He plopped billions overseas and in anti-dollar investments, bought up large amounts of municipal bonds and even insured a few billion dollars in more bonds. He’s following a relatively safe investment strategy, and he isn’t buying into the financial sector.
Many people are speculating that Buffett might start investing in the finance market soon as banks bottom and he invests in is favored investments: those that are temporarily beaten down. But with Washington Mutual at $6 per share, down from $40 and Lehman on the brink of collapse, it’s not too surprising no bets have yet been made.