EDITORIAL: Warren Buffett’s case for simplicity
The Oracle of Omaha estimates that over nine years up to 60% of all gains achieved by five funds-of-funds end up diverted to the managers
At the weekend, investor and philanthropist Warren Buffett released his famous annual letter to the shareholders of Berkshire Hathaway. In it, he made a calculation that has caused some consternation in investment circles: $100bn has disappeared. This is what pension funds, endowments and wealthy individuals have lost over the past decade to hedge funds and other money managers who charge what he described as "sky-high fees". The calculation was the consequence of a bet he announced in 2005 in the Berkshire annual report, which said that active investment management by professionals over 10 years would underperform returns achieved by rank amateurs who simply sat still. Subsequently, he publicly offered a wager of $500,000 that no investment pro could select a set of at least five hedge funds and would over an extended period match the performance of an unmanaged S&P 500 index fund charging only token fees. "I then sat back and waited expectantly for a parade of fund managers — who ...
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