Billionaire investor Warren Buffett compared the U.S. Federal Reserve to a hedge fund because of the central bank’s ability to profit from bond purchases while accumulating a balance sheet of more than US$3 trillion.
“The Fed is the greatest hedge fund in history,” Buffett told students Thursday at Georgetown University in Washington. It’s generating "US$80 billion or US$90 billion a year probably" in revenue for the U.S. government, he said. "And that wasn’t the case a few years back"
The central bank has been buying US$85 billion of bonds a month to help the U.S. recover as it emerges from the deepest slump since the Great Depression. Chairman Ben S. Bernanke and other Fed policy makers unexpectedly opted this week to sustain that pace of asset purchases instead of tapering it, saying they need to see more signs of lasting improvement in the economy.
The Fed remitted $88.4 billion to the Treasury Department last year. The payments have ballooned as the central bank built its balance sheet during the past five years.
The Fed "is under no pressure, none whatsoever to have to deleverage" Buffett said. "So it can pick its time, and if you have somebody wise there — and I think Bernanke is wise, and I certainly expect his successor to be — it can be handled. But it is something that's never quite been done on this scale. It will be interesting to watch."