It's essential to read the hedge fund research especially the papers estimating the massive survivorship bias from funds that were either closed or never submitted into hedge fund indices. A remarkably clear picture arises : many hedge funds are conservatively run and produce indifferent returns; the vast majority of high performing funds take on massive additional risk - leverage, lack of liquidity in underling investments, lack of diversification. In practice you will find that most hedge funds generate minimum alpha and that it is hard to identify in advance those few that will perform. Consultants and trustees will however continue to pour money into hedge funds- after all anything is better than stopping the gravy train for advisers and forcing institutions to recognise that pension funds are underfunded. In the meantime as Lack points out the major winner will be hedge fund managers.