I noticed that in the long run even the best hedge funds only have 10-25% annual gain. Is this what the public and the funds expected? I know some private traders can outperform that easily. Does it mean HF is a joke?
Well, to truly evaluate the performance you'd also need to take into account the riskiness of the strategies employed to get the returns. (Although, again, there are some private traders who outperform there, too.) The biggest difference would be the amount of capital being traded. It is one thing to return 300% with $100,000 and quite another to return 30% with $10,000,000. In any case, to my mind, the only people who would scoff at 25%, or think it "a joke", are those still not fully acquainted with the harsh reality of the trading landscape or on a temporal hot-streak.
Remember the quoted return is usually after all fees. So, the real returns can be as high as 42%: 1-2% mgmt fee + 20% success fee + 20% limited partner distribution returns. Some funds like SAC have gone from the low hundred million to well over a billion.
Hedge funds are typically invested in by wealthy people. They don't have to seek to become rich. So, as a rule, they don't want undue risk for a reward they don't need anymore. Instead, they seek to preserve the wealth they've attained and outpace inflation, that's the stage they're at.
The 20% performance fee is 20% of profits, not of assets. So for a 42% gross return, the net return would be (.42-.02)*(1-.2) = 32%.