Warren Buffett’s Challenge

The Buffett Challenge, hedge funds vs. index funds, 9 years on

Nearly 10 years ago Berkshire Hathaway CEO (and arguably one of the best investors on Earth), Warren Buffett, issued a challenge to the hedge fund industry — a $1 million bet that they could not put together a portfolio of hedge funds that would outperform an S&P 500 Index fund over a 10-year period.

Buffett was convinced the combination of active stock-picking and high costs would result in lagging market performance, and he was willing to put his money where his mouth was.  One company stepped up to the challenge. Protégé Partners LLC selected five hedge funds (the names of the funds have not been disclosed publicly), and Buffett selected the Vanguard Admiral Shares S&P 500 Index Fund.

And The Winner Is…

  • After nine years, hedge fund portfolios are up 22 percent on average, compared to 85.4 percent for Warren Buffett’s Vanguard Admiral Shares S&P 500 Index Fund pick.
  • Three of the five hedge funds have average annualized returns of less than 1 percent.
  • Buffett’s charity beneficiary looks set to get account funds come Dec. 31, 2017, as the Oracle of Omaha’s bet outperforms Protege Partners’ five undisclosed hedge funds.