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Protégé Partners Pays Up in Buffett Bet

The final results are in, and the S&P 500 trounced a basket of funds-of-funds, sending more than $2 million to a small Omaha nonprofit.

  • By Leanna Orr

Fund-of-hedge funds firm Protégé Partners lost its decade-long bet with Warren Buffett that hedge funds would outperform the stock market — and a girls’ education charity in Omaha, Nebraska, is about to be $2.27 million richer for it.

“We have not received the actual funds yet but expect to shortly,” Girls Inc. of Omaha’s executive director Roberta Wilhelm wrote in an email to Institutional Investor. “We have the option to receive the funds in stock or cash and that determination has not yet been made.”

In the original $1 million wager that Buffett made with Ted Seides — then co-manager of Protégé Partners — he pitted the Standard & Poor’s 500 stock index against the average of five funds-of-hedge-funds handpicked by Seides. Whichever produced greater returns, net-of-fees, for the ten years ending December 31, 2017, would win the $1 million stakes for the charity of its choice.

Buffett selected his hometown branch of Girls Inc., which runs educational, recreational, and mentorship programs for local youth. Seides picked Friends of Absolute Return for Kids.

[II Deep Dive: Vanguard Shines in Protégé’s Bet with Warren Buffett]

At the bet’s inception both parties put $320,000 each into a zero-coupon bond, which would grow to $1 million at maturity, a source with knowledge of the agreement told II. But in 2012, both parties agreed to sell the bond and invest the wager in Berkshire Hathaway. They together bought 11,200 Berkshire B shares at about $89.70, the Wall Street Journal  reported. The stock closed Monday at $202.74, more than doubling the original value of the prize to $2.27 million.

Girls Inc.’s entire 2016 revenue totaled $2.5 million, according to its latest annual report. Whether received in cash or Berkshire B shares, the donated winnings are set to roughly match that revenue figure.

Buffett declared provisional victory in his 2017 shareholder letter, published the end of last February. “The compounded annual increase to date for the index fund is 7.1%, which is a return that could easily prove typical for the stock market over time… The five funds-of-funds delivered, through 2016, an average of only 2.2%, compounded annually. That means $1 million invested in those funds would have gained $220,000. The index fund would meanwhile have gained $854,000.”

In May, Seides admitted in a Bloomberg op-ed that “with eight months remaining, for all intents and purposes, the bet is over. I lost.”

A spokesperson for Protégé declined to comment on the company’s behalf.

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