Excellent article, Ben, but I think hedge fund performance has actually been substantially worse than even your cautious article suggests. I'm sure you know that indices such as the HFRX suffer from reporting biases, and those biases are generally upward--that is, showing better performance than investors actually get.
CEM Benchmarking published a report last year (sponsored by NAREIT, my employer) summarizing the ACTUAL investment returns received by several hundred large U.S. pension funds over the 17-year period 1998-2014. (1998 was the farthest back that CEM Benchmarking had data for hedge funds and REITs, and 2014 was the latest data available after correcting for reporting lag in illiquid investments.) The study can be downloaded from http://www.cembenchmarking.com/Files/Documents/Asset_Allocation_and_Fun… or https://www.reit.com/data-research/research/cem-benchmarking-study-disc….
CEM Benchmarking found that, over the entire 1998-2014 period, hedge funds were the WORST performing asset class with actual net total returns averaging just 5.04% per year. Literally the only asset category that returned less than hedge funds was cash. (In their report the "U.S. Other Fixed Income" category underperformed hedge funds, only because that encompassed cash.)
Hedge funds also underperformed on a risk-adjusted basis. In fact, hedge funds had the lowest Sharpe ratio over the entire 17-year period, over three of the eight 10-year periods, over all three 15-year periods, over four of the thirteen 5-year periods, and over three of the fifteen 3-year periods. The ONLY period when hedge funds outperformed was 1998-2000 (and, of course, that was only on a risk-adjusted basis).
Hedge funds have compiled a truly impressive, truly consistent record as the absolute WORST investments made by U.S. pension funds.