What Would Warren Buffett Say?

Reader comment: Relying on Buffett’s wisdom to support CalPERS’ Joseph Dear.


Comment added to article: Joseph Dear: Change Agent

Talk Back - Institutional Investor

Talk Back - Institutional Investor

Comment from InvestmentGeek, July 6, 2009 — Mr. Dear is a smart man and a good choice for this position. However, I am not a fan of most hedge funds and private equity investments.

I would like to quote a recent article about Warren Buffett to help support my points. The article states in relevant part as follows: “Will a collection of hedge funds, carefully selected by experts, return more to investors over the next 10 years than the S&P 500? That question is now the subject of a bet between Warren Buffett, the CEO of Berkshire Hathaway, and Protégé Partners LLC, a New York City money management firm that runs funds of hedge funds - in other words, a firm whose existence rests on its ability to put its clients’ money into the best hedge funds and keep it out of the underperformers. You can guess which party is taking which side”.

Warren Buffett does not believe that most hedge funds will beat a simple index fund over the long term and neither do I. There is also concern about the potential of covenant lite loans blowing up in the next couple of years. The cash position is a smart move. I reallocated over 90 percent of my portfolio to cash about a year prior to the crash. A simple allocation to cash prior to 2008 would have saved billions in public pension dollars.

Most institutional investors got it wrong and I don’t believe further allocations to private equity is the answer. In addition, no one has a handle on the total derivative exposure left in the market.