Warren Buffett has won his $1 million bet against the hedge fund industry

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His logic??? The fed was his logic...the fed spent trillions to prop up the market....of course he's going to win...there is zero logic involved when the fed is pumping markets with trillions of dollars and creating a zero interest market environment....

This prediction was made in 2007 i.e. before the great recession so fed pumping in money to prop up the market can make only partial a case.

http://www.businessinsider.com/hedge-funds-and-sp-500-nearly-identical-2013-8
"And while the correlation between the two indices is almost 0.6, the beta of the hedge fund index has consistently been low - about 0.33 over the 20 year period."

Does this statement make any sense. A low beta instrument will underperform in a rising market.

There might another logic: HF industry is seeing consolidations i.e. fewer players with bigger funds. It is always tough to return high on a bigger fund until and unless you are playing mere 8-12 stocks like Bill Ackerman and taking high risks.

 

[sle]

There might another logic: HF industry is seeing consolidations i.e. fewer players with bigger funds. It is always tough to return high on a bigger fund until and unless you are playing mere 8-12 stocks like Bill Ackerman and taking high risks.

Well, majority of larger hedge funds have been running a multi-manager type business where they hire a bunch of PMs and manage them as a diversified portfolio. Supposedly, that type of business is not as susceptible to the capacity constraints, but you still have a number of people chasing the same types of phenomena.

PS. With massive consolidation, I personally expect hedge fund returns to go down even further. What would really destroy the industry is if it underperforms the market in the next downturn.

 

[SimpleMeLike]

Hello,

I heard about this competition years ago. I feel bad for the investors who on earned 2% annual return during this bet.

I'm sure it feels awful when the regular old working person made more in 401k with sp500 index then someone who invested in a hedge fund years ago.

The common working person has no business investing in a hedge fund. SP500 index is more then enough.

If I build a trading system and it does not beat the SP500 index year after year, I suck at trading.