Berkshire Hathaway Inc. (NYSE:BRK.B)‘s CEO and largest shareholder, Warren Buffet shared his views on the hedge fund industry, and they were anything but welcomed by the hedge funds. Buffet spoke to CNBC‘s Andrew Ross Sorkin in an interview.
Berkshire Hathaway Inc. (NYSE:BRK.B)’s Chairman was asked to share his thoughts on the recent decision that Calpers, California Public Employees Retirement System, made in connection with quitting the hedge fund scene. Warren Buffet told the story in form of a personal parable that got the message right through.
“Well, I made a bet 7 years ago, and I made this offer to anybody in the U.S. that I’d bet a million dollars and they could pick any group or fund of fund of hedge funds and I would take the S&P 500 run by Vanguard and the winner would get to pick the charity that the money went to. All I can tell you I am quite a way ahead on that bet now. Hedge funds after fees, in my view are not going to deliver a return as good as buying a low cost index-fund […],” said Buffet.
Warren Buffet’s remarks show how the perception of hedge funds is generally misconstrued. Berkshire Hathaway Inc. (NYSE:BRK.B)’s CEO explains that while hedge funds may show better profits than the index funds from time to time, but over a long term horizon they will average out delivering the same or even worse results than these indexes. Profits from the sophisticated techniques that hedge funds use are mostly used to pay the unusually high management fees rather than as returns to the investors.
Berkshire Hathaway Inc. (NYSE:BRK.B) which is an Omaha based multinational company differs from hedge funds in many ways as it has a substantial stake in companies that it has in its portfolio rather than hedge funds who drive their revenues mainly through speculation and from the fact that they are less regulated and hence can make more risky investments than mutual funds.
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