Buffett takes swipe at fees of hedge fund managers
Warren Buffett isn’t done criticising hedge-fund managers for wasting clients’ money.
At the annual meeting of his Berkshire Hathaway he again pressed the argument that, in aggregate, investment professionals aren’t worth their fees — and that people would be better off sticking their money in a low-cost index fund. He also challenged how hedge fund managers are paid.
“If you go to a dentist, if you hire a plumber, in all the professions, there is value added by the professionals as a group compared to doing it yourself or just randomly picking laymen,” Buffett, 86, said.
“In the investment world it isn’t true. The active group, the people that are professionals in aggregate, are not, cannot, do better than the aggregate of the people who just sit tight.”
Vice chairman Charles Munger, 93, said “it’s even worse than that” because some hedge fund managers with a long career in the industry — known for charging 2 per cent man- agement fees and taking 20 per cent of profits — do well, attract money and then lose it.
“The investing world is just a morass of wrong incentives, crazy reporting and, I’d say, a fair amount of delusion,” Munger said. Buffett also challenged, as he has in previous shareholder meetings, the 2-and-20 compensation model for hedge fund managers. “If you even have a billion dollar fund and get 2 per cent of it, for terrible performance, that’s $20 million,” Buffett said. “In any other field, it would just blow your mind.”
By comparison, the two stockpickers at Berkshire, Ted Weschler and Todd Combs, manage about US$20b ($28.91b) between them and get paid US$1m a year in salary, plus bonuses based on the amount by which they beat the S&P 500 Index.
The average hedge fund gained about 2 per cent this year through April compared with the rise of about 6.5 per cent in the S&P 500 Index.