NEW YORK (TheStreet) -- Warren Buffett's bet against hedge funds proves that they don't outperform the market -- or does it?

In 2008, the billionaire made a $1 million gamble against hedge fund Protégé Partners that an S&P 500 index fund would outperform five hand-picked hedge funds over the course of 10 years. The Oracle of Omaha has just completed year seven of the bet, and this is the scoreboard so far: Vanguard's 500 index fund is up 63.5%, and Protégé's funds, the identities of which have not been revealed, have gained 19.6% (net of all fees, costs and expenses).

To outweigh costs and 2/20 fee schemes (many hedge funds charge large management fees: 2% of assets under management and 20% of returns), hedge funds need to provide outsized returns. Protégé's picks apparently haven't been doing that. And in 2014, they certainly weren't.

It wasn't a good year overall for hedge funds, actually. eVestment estimates average returns of just 2.5%, and the HFRX Global Hedge Fund Index ended the year down 0.6%. The industry experienced the highest closure rates since 2009.

Are hedge funds a bust? Well, no. But not every operation -- or manager -- is made alike.

Generating returns so strong they produce gains even after fees is easier said than done. La crème de le crème of Wall Street -- a.k.a., billionaire hedge fund managers - often manage to do so. But not always.

A Look at Ackman

Take, for example, Bill Ackman. The billionaire was 2014's headliner, scoring major wins on Allergan (AGN) - Get Report, Canadian Pacific (CP) - Get Report and Air Products & Chemicals (APD) - Get Report.

His fund's most recent performance review indicates Pershing Square Holdings, Ltd. returned 40.4% net in 2014 - impressive against the S&P 500's 13.7% gain. But in 2013, the story was entirely the opposite: the S&P performed 32.4%, and Pershing just 9.6%.

According to the document, Pershing Square, L.P. has returned 696.2%, net of fees, since 2004 -- well above the S&P 500's 132.1% climb. In a second quarter letter to Pershing Square investors, Ackman wrote that the funds had returned 21% net per annum since 2004.

Exactly how much money this has translated to for investors is up for debate (LHC Investments says $11.6 billion, others on Wall Street $8.5 billion). Either way, Ackman has done well.

Greenlight, Third Point

Greenlight Capital, run by David Einhorn, didn't have quite the year Pershing Square did. As per its fourth quarter letter to investors, Greenlight's funds returned 8.0% in 2014, net of fees.

Since the firm's May 1996 inception, however, it has performed well, returning 2,416% cumulatively -- 18.9% annualized - net of fees and expenses.

Dan Loeb's Third Point has yet to release its full-year 2014 numbers. However, as of the end of the third quarter, its offshore fund had returned 6.0% year-to-date. ValueWalk estimates that it likely ended the 2014 returning somewhere between 6% and 7%, well below its 25.2% gain from 2013.

Similar to Greenlight, Third Point's numbers tell a different story across the years. Since its December 1996 inception, the Third Point Offshore Fund Ltd. has produced a 17.5% annualized return.

From January 1997 (when both Third Point and Greenlight were up and running) through December 2014, the S&P 500 produced an annualized return of about 7.8%.

Pershing Square, Greenlight Not the Annualized Exceptions

Ackman, Einhorn and Loeb aren't the only top hedge managers who have, over the long haul, performed well.

According to Forbes' Nathan Vardi, David Tepper's main hedge fund generated net returns of nearly 40% from 2009-2013. Barron's reported that Larry Robbins' Glenview Offshore Opportunity fund averaged a 32.61% annualized return in the three-year period ending in December 2013, and Tiger Global Management, founded by Chase Coleman, returned an average 26.68% during the same period.

And as for the Oracle of Omaha himself, his Berkshire Hathaway -- which is, of course, much more than a hedge fund -- reported a compound annual gain of 19.7% since inception in its annual letter to investors released a year ago.

These billionaires have proven long-term prowess, but all weren't able to duck 2014's hedge fund punches.

In terms of their total public equity returns (which are estimates based on 13F filings), Bill Ackman, Larry Robbins and David Einhorn outperformed the S&P 500 last year. A number of other big names -- including Ray Dalio and John Paulson -- did not. But they're still listed among the top hedge fund managers out there over the long term.

Stock picking is hard to do -- and by the looks of this Protégé-Buffett bet, hedge fund picking is tough, too.

The wager doesn't prove that the hedge fund game is a losing one, nor does the beating the industry took in 2014. What it does say, however, is that identifying long-term top performers is a daunting task. And by the looks of it, Protégé hasn't put the right eggs in its basket.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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