Berkshire Meeting: Buffett Would Pay Munger 'Two and 20'

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Mr. Buffett has long been critical of high investment fees, especially the "two and 20" hedge-fund fee structure, where hedge-fund managers earn 2% of assets under management and 20% of any investment gains.

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But what about Mr. Munger, Carol Loomis asks? Would you pay him "two and 20" for his investment advice?

The question gets to the crux of the criticism that some corners of Wall Street direct toward Mr. Buffett. He paints investors with a broad brush, they say, but some managers really do beat the market--including Mr. Buffett himself.

Mr. Buffett acknowledges that several hundred or even a thousand people in the world, including about 12 he knows personally, "would do better than average in investing over a long period of time." Charlie is one of them, he says.

"So would I pay him? Sure," he says. But "it's just not a good question to ask." Since there are so few people that can outperform, investors should avoid active managers as a group instead of assuming they can pick the very few who can do well, he says.

Then Mr. Buffett talks about one of his favorite topics--his bet that the S&P 500 can outperform five funds of hedge funds over 10 years. He is almost definitely sure to win the bet.

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(The man on the other side of the bet, Ted Seides, recently wrote a column about why he lost.)

Mr. Buffett also explains his pay structure for his investing managers, Ted Weschler and Todd Combs, who are rewarded for beating the S&P 500.

Click here to see the full live coverage of Warren Buffett at Berkshire Hathaway's annual meeting:

http://www.wsj.com/livecoverage/berkshire-hathaway-2017-annual-meeting-analysis

Write to Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

May 06, 2017 13:44 ET (17:44 GMT)