Simon Lack, the author of The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True famously issued a challenge for anyone to show that they became rich through investing in hedge funds. After nine years, it is still unmet. With their perverse fee structures, there is no shortage of hedge fund managers who became rich even if their investors did not.
In Warren Buffett’s 2017 letter to shareholders of Berkshire Hathaway, he lays out the details of his overwhelming victory in his 10-year bet on a Vanguard S&P 500 Index fund vs. a collection of five hedge funds professionally chosen by Protégé Partners. The S&P 500 fund beat all five hedge funds by margins ranging from 2.0% to 8.2% per year annualized returns.
In response to Warren Buffett’s most recent Berkshire Hathaway shareholder letter which details an all-but-certain victory in his ten-year bet on the outperformance of a Vanguard S&P 500 Index fund vs. a collection of five hedge funds chosen by Ted Seides of Protégé Partners, Bloomberg author Jared Dillian asks, “Does Warren Buffett Not Understand Risk-Adjusted Returns?”