Warren Buffett Rips Hedge Funds at Annual Meeting

At the Berkshire Hathaway Inc. annual shareholders meeting over the weekend, Warren Buffett ripped into hedge funds and other investment vehicles associated with investment fees.

He specifically mentioned pension funds’ appetite for those vehicles.

From the Chicago Tribune:

After telling shareholders that he would offer “probably the most important investment lesson in the world,” he said Wall Street salesmanship has masked poor returns for years. Consultants, he added, have steered pension funds and others to high-fee managers who, as a group, underperform what you could get “sitting on your rear end” in index funds. The arrangements “eat up capital like crazy,” he said.

Buffett was building on an argument he’s been making for years about why backing U.S. businesses in aggregate, through low-cost funds, is the more certain way to prosper over the long haul.

[…]

Compounding the problem are middlemen who charge fees to pick managers, Buffett told shareholders.

“Supposedly sophisticated people, generally richer people, hire consultants. And no consultant in the world is going to tell you, ‘Just buy an S&P index fund and sit for the next 50 years,'” he said. “You don’t get to be a consultant that way, and you certainly don’t get an annual fee that way.”

That’s the key to the argument, said Richard Cook, a fund manager in Birmingham, Alabama, who made the trip to Omaha. Buffett still believes that some active investors can beat the S&P 500 over time, Cook said, but in a fund of funds “the fees on fees just destine you to lose.”

Hedge funds have experienced outflows of $16.6 billion over the last two quarters, according to Hedge Fund Research.