Veteran hedge fund manager Guy Spier closes Aquamarine Fund as stock-picking edge diminishes

Investing.com - Guy Spier, a renowned value investor in Zurich and a long-time follower of Warren Buffett, is returning funds to investors in his $470 million Aquamarine fund, citing personal health challenges and a fundamental shift in the feasibility of active management.

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The 60-year-old fund manager won the opportunity to have lunch with Buffett through a charity auction in 2007, and he noted that the meticulous research once used to beat the market is being rapidly commoditized by artificial intelligence.

The Aquamarine fund has achieved a lifetime return of 1,186% since its inception in 1997, outperforming the S&P 500 index, but it has underperformed the benchmark over the past eight years.

The dominance of passive investing and the rise of AI

Spier’s decision to close the fund reflects the broader dilemma facing the active management industry, with investors pulling more than $428 billion from actively managed mutual funds last year in favor of passive investment tools.

The hedge fund manager believes that as data becomes widely accessible, the investment philosophy of “Buffett and Munger” identifying undervalued quality companies and buying them at reasonable prices is becoming increasingly difficult.

Spier has previously found alpha returns in obscure areas such as Philippine dairy or UK grain manufacturers, but he now states that “everyone is looking everywhere,” effectively eliminating the informational advantage that once drove excess returns.

The headwinds faced by value-oriented stock pickers have intensified due to the continued dominance of the “Magnificent Seven” tech stocks in the U.S. market. Like many in the Berkshire Hathaway circle, Spier’s historical aversion to high-valuation tech stocks has left his portfolio exposed in this recent era of double-digit growth dominated by those stocks.

He ultimately softened his stance after observing Buffett’s entry into Apple in 2016 and holding Alphabet Inc. But this late pivot was insufficient to offset the structural challenges faced by those relying on numerical analysis to solve market problems.

A turning point for active strategies

Spier’s exit provides a thought-provoking data point for the future of professional stock picking. While 54% of active funds had outperformed the S&P 500 as of February, the impending turmoil from the Iran war and the integration of generative artificial intelligence into research workflows are viewed as permanent obstacles to continued outperformance.

The seasoned stock picker insists that while “original thinking” still has value, the era of traditional process-driven analysts is coming to an end, as automated systems have proven to be more efficient in synthesizing vast datasets of the modern digital economy.

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