Hedge Fund Guy Who Lost Buffett Bet Having Second Thoughts

Ted Seides, who conceded a bet to Warren Buffett that passive investing can beat active money managers, has soured on hedge funds that use long/short strategies.

Seides, managing partner at Hidden Brook Investments, said the funds are struggling to profit from shorting stocks -- betting that their price will fall. He was also skeptical of managers who invest in distressed debt, saying the strategy “will never be rich again,” because so many investors are prepared to profit from bonds selling off.

“The one strategy that is facing an existential question is long/short equity,” Seides, formerly of Protege Partners LLC, said Friday at an investor conference at the University of Virginia’s business school in Charlottesville.

In 2007, Seides made a 10-year charitable wager that pitted the returns of five expensive funds of hedge funds against a cheaper S&P 500 index fund. Even though the $1 million bet doesn’t conclude until the end of December, Seides in May wrote in a column for Bloomberg News that the bet was over; he lost.

While Seides said he wouldn’t make the bet again, he would include hedge funds in any portfolio. He said long-only hedge fund managers are “doing extraordinarily well.” He said quantitative funds “are extracting something from all the rest of us.” He also said funds are great at finding new areas of profit, such as royalty streams and litigation finance.

Larry Kochard, the outgoing manager of the University of Virginia endowment who interviewed Seides at the conference, said the school fund had an outsized allocation to long/short hedge fund managers when he was hired as chief investment officer in 2011. That position has been reduced over time to less than 20 percent of the $8.6 billion portfolio. Kochard joins Makena Capital Management in January, Bloomberg reported in October.

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