In a move to prove that investors are paying too much in fees for portfolio managers, investment mogul Warren Buffet has placed a bet with a New York hedge fund to see if carefully selected funds can beat the S&P 500, Fortune.com reported today.
The $640,000 bet, which was struck on Jan. 1, pits Mr. Buffet against Protégé Partners LLC and is based on the performance of five funds selected by the hedge fund manager.
The outcome of the wager rests on whether those funds will beat the S&P 500 over a 10-year period.
Mr. Buffet, who is chief executive officer of Omaha, Neb.-based Berkshire Hathaway, contends that management fees imposed by money managers like Protégé eat away so much of investors’ returns that it would be more advantageous for them to utilize a standard index fund.
The ultimate winner of the bet will be charity, since the $640,000 that was used to buy a zero-coupon Treasury bond is estimated to be worth $1 million when the 10-year cycle concludes, will be given to an organization of the winner’s choosing.
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