Almost a decade ago Warren Buffett made a bet with Ted Seides then of Protege Partners a specialised asset management firm that the S&P500 would over the next ten years beat a selection of the hedge funds. With the bet nearing its termination date Seides has admitted defeat and in an article for Bloomberg sets out the reasons why he lost. The article can be summarised as simply I would have been right but I was wrong. Lost within the self justification and rationalisation is the simple undeniable fact that hedge fund managers in the main simply do not know what they are doing and the results they generate demonstrate this. Seides makes much of the fact that hedge funds do well in markets that fall – the response to this is shouldn’t they do well in all types of markets instead of getting occasionally getting lucky. Hedge fund managers are paid vast fortunes to deliver nothing to their stakeholders that couldn’t otherwise get by simply buying an index fund for very little cost.
If domestic superannuation is an idiotic tax on the middle class and the poor then hedge funds are an idiot tax on the wealthy.
For an in depth look at this I recommend that everyone add Simon Lacks – The Hedge Fund Mirage to their library