This prediction was made in 2007 i.e. before the great recession so fed pumping in money to prop up the market can make only partial a case. http://www.businessinsider.com/hedge-funds-and-sp-500-nearly-identical-2013-8 "And while the correlation between the two indices is almost 0.6, the beta of the hedge fund index has consistently been low - about 0.33 over the 20 year period." Does this statement make any sense. A low beta instrument will underperform in a rising market. There might another logic: HF industry is seeing consolidations i.e. fewer players with bigger funds. It is always tough to return high on a bigger fund until and unless you are playing mere 8-12 stocks like Bill Ackerman and taking high risks.
Well, majority of larger hedge funds have been running a multi-manager type business where they hire a bunch of PMs and manage them as a diversified portfolio. Supposedly, that type of business is not as susceptible to the capacity constraints, but you still have a number of people chasing the same types of phenomena. PS. With massive consolidation, I personally expect hedge fund returns to go down even further. What would really destroy the industry is if it underperforms the market in the next downturn.
Hello, I heard about this competition years ago. I feel bad for the investors who on earned 2% annual return during this bet. I'm sure it feels awful when the regular old working person made more in 401k with sp500 index then someone who invested in a hedge fund years ago. The common working person has no business investing in a hedge fund. SP500 index is more then enough. If I build a trading system and it does not beat the SP500 index year after year, I suck at trading.