What if Warren Buffet ran a hedge fund?
If you thought that fund management charges were just a technicality then prepare yourself for a rude awakening.
According to a recent article published in the Telegraph, Warren Buffet’s holding company, Berkshire Hathaway, has produced a stellar investment performance over the past 45 years, compounding returns at 20.46% per annum. If you would have invested $1,000 in the shares of Berkshire Hathaway when Buffet began running it in 1965, by the end of 2009, your investment would have been worth $4.8M.
However, if instead of running Berkshire Hathaway as a company in which he co-invests with you, Mr. Buffet had set it up as a hedge fund and charged 2 percent of the value of the funds as an annual fee plus 20% of any gain (which is the standard hedge fund structure), of that $4.8M, $4.4M would belong to him as a manager and only $400,000 would belong to you, the investor. You would then be left with less than a tenth of what your investment manager would receive…
We did the math just to make sure the numbers in the article were accurate. Although we did find some discrepancies, the bottom line still remains stunning (you would be left with 11.32% of the total amount instead).
Your questions or comments are always welcome.