The current popularity of hedge fund investing is nothing more than a “fad” and is storing up a “huge problem” for the next ten years, the chairman of Berkshire Hathaway, Warren Buffett told shareholders at the firm’s annual meeting.
“People that are now investing in hedge funds in aggregate are going to be disappointed,” Buffett told the 20,000 shareholders that attended the ‘Sage of Omaha’s’ speech in Nebraska.
Investors ploughed $26.8 billion into hedge funds in the final quarter of 2003, capping off a record year for inflows into the alternative investment funds which saw $72.2 billion pumped into the sector last year, according to the research unit of Tremont Capital Markets. By comparison, in 2002 inflows totaled $16.3 billion.
“Sometime in the next 10 years, you will have a huge problem that will either be caused by or accentuated by people’s activities in derivatives," warned Buffett.
He pointed to the $6 billion accounting scandal that embroiled the US mortgage financier Freddie Mac to highlight the risks associated with dealing in complex financial instruments.
Buffett’s remarkable career as a stock picker and investor has amassed him an estimated personal wealth of $42.9 billion, according to Forbes Magazine, earning him the accolade of the world’s second wealthiest man.
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