Ex fund manager here. Some things about this bet that need to be mentioned:<p>- It should be risk adjusted. No idea how the numbers come out, but what's the sense in comparing the return without the accompanying variance? For example if the S&P has 15% vol over the period but the hedge fund 30%, that factor of two needs to be taken into account somehow.<p>- Management fees of 2% are clearly too high for this day and age. They came about historically when hedge funds were collections of small amounts of money, happy to take large risks. If you're willing to have volatility of 36%, paying 2% a year is going to be different from paying 2% for 12% vol. Part of the reason vol is lower is institutional investors are not HNWs. I used to run a fund that ran 36% vol as a target, and the IIs came to us and said they couldn't present it to their superiors. The explanation that you could just put less capital in didn't seem to resonate with the box checkers. Must be something that Kahnemann and Tversky could illuminate.<p>- I'm not sure the thing about the S&P being unnaturally strong is a valid excuse. If you're a hedge fund, you are free to just do a leveraged play on the S&P, thus beating it if you think it's going up. Same goes for what will inevitably come up, the extraordinarily loose monetary policy following the crisis. Whatever caused the S&P to go up, you could have bet on it.<p>- The bets are against funds-of-funds, which compound fees. You might be paying 2/20 to the underlying funds and 1/10 to the manager of this portfolio. That's a pretty big chunk. Normally what the FoF says to its customers is they have access to funds that others don't, through good relationships gained over years. Though looking at the summary in Buffett's letter it looks like even if you added ~30% for the 10 years of fees to each group, you still wouldn't beat the S&P. But that's just my late night eyeballing, perhaps with the performance fee it would be in the ballpark.<p>- Buffett stipulated it had to be multiple funds-of-funds, probably because this would mean you'd get S&P with costs. What else are a bunch of mainly American hedge funds going to invest in, given you have hundreds of underlying funds? You might get the odd emerging markets fund, but they'll be swamped out by the hundreds of generic funds that just punt some US stocks. Restricting it to funds-of-funds is actually pretty smart, because FoFs are going to tend to be conservative and take a selection from the buffet (yeah I said that). Allowing individual hedge funds might have given a very different result.