Buffett sends another sacred Wall Street myth down the tubes

Forget George Washington and the cherry tree. Warren Buffett may have delivered a blow to a cherished origin-myth of the hedge fund nation. His weapon of choice was a letter, which appeared in the latest issue (Summer 2006) of Financial History, the magazine of the Museum of American Finance, New York.

Buffett's letter is a response to an article in the previous issue. The article made the unremarkable statement that the "first known hedge fund was started in 1949 by Alfred Winslow Jones."

That is the story. Buffett takes an axe to it. "Ben Graham managed a hedge fund in the mid-1920s," he wrote. How do we know it was a hedge fund? Because it had all the characteristics later thought remarkable in Jones' vehicle: "partnership structure, a percentage-of-profits-compensation arrangement for Ben as general partner, a number of limited partners, and a variety of long and short positions."

Buffett didn't claim that he has replaced one putative founder with another. "Incidentally," his letter concluded, "I make no claim that Ben's … partnership was the first. It's just the first that I know of."

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