Warren Buffett, head of Berkshire Hathaway Inc. (BRK.A), (BRK.B), is winning a bet he made four years ago with hedge funds on their ability to beat the stock market over a decade long period. Buffett said the hedge funds involved would not be able to beat the S&P 500 from January 1st 2008 to December 31st 2017. The bet was made with Protege Partners LLC, a fund of hedge funds based in New York co-founded by Tony Sedaris and Jeffrey Tarrant. The bet sees an index of five funds investing in hedge funds pitted against a fund investing in the S&P 500 index. The ultimate winner of the bet gets to allocate $1 million of the other’s money to a charity of their choice.
So far Buffett is beating the funds, though it is early in the race. At the beginning of this year the Vantage fund, Buffett’s choice, had gained 2.1% while the competing hedge fund had lost an estimated 3.75%. The rally in stocks this year have so far put Buffett well into the lead. The gain of 9% this year made by the S&P 500 give him breathing room as the hedge funds gained just over 4%. Year on year the race has been a close one. The volatility of the market has impacted the bet significantly. In 2008 Vantage lost 37 percent while Protege declined much less at 24 percent. 2009 saw gains for both, the S&P indexed fund rising by 27 percent, and Protege seeing 16 percent gains. The gains for 2010 were less showing Buffett’s contender gaining 15 percent while the hedge funds gained 8.5 percent.
So far so good for whichever charity Warren Buffett chooses. The competition will be interesting in the years to come. With volatility ratings being reduced and the United States apparently in recovery both funds enter into a very different market than the one they have been dealing with for the last four years. 2011 was the worst year on record for hedge funds though Protege seems to have dodged most of the pitfalls it held. The S&P 500 has climbed above 1400 in recent weeks and opened at 1405.52 today though it had suffered somewhat by midday today losing a quarter of a percent. That fall was based on worse than expected existing home sales values for February. Despite today’s numbers analysts are still predicting a recovery, and the market appears to be welcoming the forecast with open arms.
The bet between the two investment giants doesn’t end until 2017 so there is a lot more excitement to be had watching them battle it out.