OMAHA, Neb. (HedgeWorld.com)–As part of the annual meeting of Berkshire Hathaway Inc., Warren Buffett answered investors’ questions for six hours, a format that produced acerbic observations on both hedge funds and derivatives.
He said at the May 1 event that the current flow of money into hedge funds is a fad and more about Wall Street’s marketing trends than about sound investing principles. “People that are now investing in hedge funds in aggregate are going to be disappointed.”
Also, according to wire services reports, he said that the managers of these funds charge too much.
A spokeswoman for Berkshire Hathaway, Deborah Bosanek, said that she couldn’t provide a text of the remarks, since they arose at an unscripted Q-and-A session. Mr. Buffett was not available to confirm the accuracy of the wire services reports of his comments.
But an investor who was present confirmed those reports and elaborated on them for HedgeWorld. This Berkshire Hathaway investor said that the main focus of the discussion was not underlying hedge funds but funds of funds and the view (held by both Mr. Buffett and Berkshire’s vice chairman, Charlie Munger) that the layering of fees has become exorbitant. Very few funds consistently outperform the market, especially when those fees are netted out, so most of the people involved at the bottom of those layers will lose relative to what they could have gotten from a passive index.