Billionaire Warren Buffett has won $2 million thanks to a bet he made 10 years ago

Warren Buffett

Warren Buffett has won $2 million thanks to a bet he placed that the S&P 500 stock index would outperform hedge funds. The money will go to Girls Inc.

In 2007, Buffett made a bet that the S&P 500 stock index would outperform hedge funds, which he describes in a 2016 letter to Berkshire-Hathaway shareholders. He argues that over a period of time, active investment management by professionals would underperform the returns by amateurs who were passively investing.

Buffett publicly wagered $500,000 and suggested a 10-year bet. "I then sat back and waited expectantly for a parade of fund managers ... to come forth and defend their occupation," Buffett writes in the letter. "After all, these managers urged others to bet billions on their abilities. Why should they fear putting a little of their own money on the line?"

Only one person, however, took the bet, according to the 2016 letter: Ted Seides, a former co-manager of Protégé Partners, a specialized asset management and advisory firm. In a Bloomberg post, Seides says that the two agreed to the wager, which pitted low-cost S&P 500 index fund returns against a group of Protégé's handpicked hedge funds.

In an emailed statement to CNBC Make It , Buffett's secretary, Debbie Bosanek, confirmed the news of his win. "I checked with Mr. Buffett and he told me that it's absolutely certain that he will win the bet, although it won't be official until January," she writes. "The money will go to Girls Inc. and it looks like it will be $2 million or so."

Notably, the full terms of the wager between Buffett and Seides were not publicly disclosed.

The news was first reported by The New York Post and the American Enterprise Institute (AEI), a public policy think tank.

Ten years later, Seides' five funds have gained only 2.2 percent a year since 2008 compared with more than 7 percent a year for the S&P 500. That means Seides' $1 million hedge fund investments gained $220,000 in the same time period that Buffett's low-fee investment earned $854,000, according to AEI.

Buffett's index investment bet is so far ahead of Seides' that the hedge fund manager surrendered the wager, which technically doesn't end until Dec. 31.

"For all intents and purposes, the game is over. I lost," Seides wrote in the Bloomberg post. Seides gives a multitude of reasons for why he lost, including that "passive investing is all the rage today and the S&P 500 is the most popular index."

There's a silver lining to the decadelong bet: The money will go to the charity Girls Inc. of Omaha, Nebraska, which inspires young girls to be "strong, smart, and bold" through direct service and advocacy.

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