It’s one of the worst-kept secrets in the alternative investment industry: net of fees, hedge funds struggle to outperform broad equity markets.
In 2007, before bitcoin was even a glimmer in Satoshi Nakamoto’s eye, Warren Buffet famously bet a prominent fund of hedge fund manager $1 million that over the subsequent decade, an S&P 500 index fund would outperform any basket of hedge funds he could put together. Buffet won handily.
It’s not that Buffet didn’t think there were capable investment managers out there; Buffet’s Berkshire Hathaway has often been described as a giant hedge fund. Instead, his confidence relied on his intuition that between fees and trading costs, even the best hedge fund managers would struggle to beat a low-cost index fund.
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