Dan Sweet

Buffett used to run a hedge fund? (6 of 12)

This is the sixth in a series of twelve posts. The introduction to the series is here.
By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

You’ve been critical of hedge funds in the past.  Didn’t you run a fund with a similar structure before?

There was no base 2% fee.  I had all of my own money in.  I took 25% on returns over 6%.  I’d support it now days with a zero base as well.  Have proposed a $1 million bet that Nathan Myrvold can’t pick five funds of funds that can beat the S&P over 10 years.  Myrvold, former CTO of Microsoft, is still thinking about it.

No question in my mind that hedge funds and private equity will underperform the S&P.  The frictional costs are just too high.

In a speech I gave at Columbia 20 years ago I identified people who will beat the market with no risk. (reference to The Superinvestors of Graham-and-Doddsville)

Pension funds are run by people who respond to sales efforts.

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