9 June 2008

Warren Buffett bets against Fund of Hedge Funds

Fortune Magazine reports that celebrated investor Warren Buffet has made a bet that a selection of Funds that invest in Hedge Funds will not beat the performance of the Standard & Poor's 500 Index in the 10 years starting at the beginning of 2008.
The investor is confronted with a multitude of Hedge Funds (Single-Manager as well as Fund of Funds) that all claim to offer superior performance.
At the same time the Hedge Funds business is no longer a cottage industry run by a small number of maverick investors that could fish in a very large pond an chase market inefficiencies that presented themselves from time to time.
As Hedge Funds become mainstream market participants - and judged by the volume of transactions in the secondary market they may already have become THE market - it is very difficult for the Funds to offer out-performance as an industry.
There will always be individual manager that offer superior results - but that is the same with individual shares where there will be rising shares in all market environments. But the trick is to find these managers.