Most investors in Hedge Funds...are much, much better off just investing in the S&P 500 broad market index ETF. A great majority of them under perform the market average, and you're paying them an instant 2% management fee. The 20% performance fee...is understandable, but I question the management fee. If you're able to truly perform and deliver, then you should be handsomely rewarded. But if you fail, you should get nothing...no so-called management fee.
I'd rather choose a few hedge funds or CTAs that are not market correlated, so I do not care what the market does while I'm sleeping. I can always add to that a long index position myself. The goal for an investor, not a trader, is to get risk adjusted returns, not beat the "market."
I don't disagree with the fees argument (which was added subsequently as seen by the time stamps), but Protege is a fund of funds, with not just one, but two layers of fees. Even with zero fees, you're always gonna underperform a long-only strategy during a full business cycle if you're hedged, as you're supposed to be if you're a "hedged" fund. The whole point of HFs is to be uncorrelated so you can deploy more capital at risk at the same time. Problem is that 95% of HFs are garbage overpaid closet-indexers who aren't even hedged, and most have unfavorable redemption terms that force PMs to liquidate positions when the strategy hasn't been working, which tends to be precisely the wrong time to liquidate. Your fast money investors basically make you structurally short gamma. Buffett, or the components of the SPX for that matter, have permanent capital. I love how during every crash you have a bunch of 2&20 former McKinsey geniuses who get their face blown off cause they were selling deep OTM SPX puts masquerading as "alpha" while collecting their 20% every year of the bull market. Exactly the opposite of what a HF should be doing.
I'd rather personally have a see-sawing, relatively gyrating, high performance, overall better performing fund...then a somewhat very stable, low performing fund that doesn't move. Just saying the latter sounds like it makes absolutely no sense to do. If you want an absolutely flat, stable, uncorrelated market fund, that essentially goes nowhere....then just buy bonds and CD's. The whole essence of the market and in life...is to be somewhat ambitious, strive for more...in spite of the inherent lingering risks. 'Hedge' my butt...generally, basically all hedge funds got crushed as well during the housing 2008 crisis, So-called expert minds and expert traders is laughable. Hedge Funds should be a fake PR and Marketing firm blowing smoke up your butt with their created, fabricated awe and wonder and prestige. Some people have very modest market goals. 8-10% is somewhat conservative, dare I say. I can do way more than that, but I personally wouldn't take on other people's money or advise them. It seems risky enough just doing it with my own money, I wouldn't want their fate laying on my shoulders.
Actually, it always makes sense as long as 1) returns are uncorrelated; 2) returns are above your funding costs. But this is assuming returns are truly uncorrelated, and your funding cost is stable. So, usually not the case in real life. There's also the value of making money when most are getting crushed. It's the financial equivalent of reverse-commuting to work.
When I do this with my savings, I'm targeting a 8% to 10% overall return even in down to flat markets. If I can get that, I'd be very happy.