Of course it's true, Jean-Charles, that any short historical period may be an anomaly and that there will be variation among hedge funds just as there is variation among companies in the stock market. But the truth is that investors have been systematically unable to limit their investments to the best-performing hedge funds and/or the best-performing market periods, so that fact that a very large and sophisticated sample of investors (more than 300 large U.S. pension funds) over a very long recent historical period (14 years) realized returns that were so spectacularly bad must have some educational value. Don't you think?
Still, here are some other data points that should help convince you:
(1) Dichev & Yu [2011] used data over the period 1980-2008 and found not only that "the real alpha of hedge fund investors is close to zero" but also that hedge fund returns "are reliably lower than the returns of broad-based indexes like the S&P 500 and only marginally higher than risk-free rates of return." They concluded that "the risk-return profile of hedge fund investors is much worse than previously thought."
(2) Naik, Ramadorai & Stromqvist [2007] used data over the period 1995-2004 and found that "the level of alpha has declined substantially over this period. We investigate whether capacity constraints at the level of hedge fund strategies have been responsible for this decline. For four out of eight hedge fund strategies, capital inflows have statistically preceded negative movements in alpha, consistent with this hypothesis. We also find evidence that hedge fund fees have increased over the same period."
(3) Griffin & Xu [2009] used data for the period 1980-2004 and found that "hedge fund holdings and trading are not adding value on average. ... In terms of stock picking, there is some weak evidence that hedge funds outperform mutual funds on a value-weighted basis, but these superior returns are largely concentrated in the high price-to-sales (technology) sector in 199 and 2000. ... Hedge funds exhibit no ability to rotate capital among different asset styles at opportune times and their average style selection slightly underperforms mutual funds." Their conclusion was "Overall, we find that hedge funds seem to be no better at long-equity investment than mutual funds. Given that hedge funds generate higher turnover and trade in less liquid securities, our performance comparisons would look even worse if transaction costs were included. Back-of-the-envelope calculations using a standard hedge fund fee structure suggest that hedge funds are a worse vehicle than mutual funds over our sample period. In sum, our findings question the ability of hedge fund management to add value, particularly in the realm of long-equity investing. ... We predict that as data quality improves, more studies will begin to question the wisdom of hedge fund investment."