The hedge fund industry has a lot of enemies. That includes politicians, protesters and even mom-and-pop investors. But hedge funds can add another big enemy to that list. Namely, America’s favorite bespectacled value investor, Warren Buffett.
Buffett has long been critical of hedge funds and their ability to enrich their managers at the cost of their investors. And while he has long publicly stated his beliefs about the industry, recently he has been stepping up his attacks. It’s been such a pressing issue for him that he mentioned them in his latest shareholder letter, as well as on various business television shows.
But he saved his harshest criticism for the industry for the last Berkshire Hathaway Inc. (BRK-A ) shareholder meeting. At that time, Buffett compared hedge fund managers to a profession that most would likely not want to be associated with.
In the end, Buffett’s criticism of hedge funds is pretty spot-on, and he has the data to back it up.
Click here to learn about why Warren Buffett looks for wide economic moats.
A Waste Of Money
Roughly nine years ago, Buffett made a huge bet with hedge fund manager Ted Seides of Protégé Partners that the plain vanilla S&P 500 would beat a basket of five hedge funds over a ten-year period. This past May, Seides conceded victory to Buffett early. The bread-and-butter index rewarded investors with a 7.1% nine-year annualized return. Hedge funds didn’t even come close. According to Seides and Buffett, a $1 million investment in the bundle of hedge funds would have generated a $220,000 gain in nine years. The S&P 500 would have made you $854,000.