Warren Buffett won $1 million bet against Hedge Fund

400In 2007, Warren Buffett, the famed billionaire investor made a $1 million bet that an S&P 500 stock index fund would outperform a basket of hedge funds over the course of a decade. 

The index fund returned 7.1% compounded annually over the 10-year period, easily beating the 2.2% average return of a basket of funds picked by asset manager Protégé Partners, according to The Wall Street Journal. The Wall Street Journal reported that when the New York Stock Exchange closed on Friday, Dec. 29, Buffet, chairman of Berkshire Hathaway Inc., had won the bet — and it wasn't close.

The bet saw each party initially put $320,000 into a zero-coupon Treasury bond, which they estimated would be worth $1m by 2018, but it was ultimately moved into Berkshire Hathaway's class B shares when the bond's value rose faster than expected. The 11,200 shares they bought in 2012 are understood to have been worth $2.2m as of Friday.

Buffett has long been critical of the hedge fund industry, attacking high fees and relatively low returns when compared to promises made to investors.

The proceeds would go to a charity: Girls Inc. of Omaha, which provides after-school programs and summer programs for girls in elementary school through high school.

Now, the charity for girls will probably receive more than the originally agreed upon $1 million, the Journal said. The $320,000 in bonds that originally made up the bet appreciated faster than expected as interest rates dropped. 

Executive Director Roberta Wihelm said Girls Inc. of Omaha is grateful for the proceeds of the winning bet. 

"An investment in the girls' potential always pays off over time and, like Warren, we're in it for the long haul," Wilheim said in an email. "We'll put the money to work helping girls grow up to become confident, self-sufficient women." 

The organization told the Journal that it plans to invest the donation and use the proceeds for transitional housing for 16 young women who are aging out of foster care.


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