It looks like after about a 30 year run, people are beginning to realize that hedge funds are basically a scam:

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In Trump, Mercer and his fellow hedge funders had much to extol. Tapping into the wealth he amassed at his wildly profitable firm, Renaissance Technologies, Mercer and his daughter Rebekah (dressed that evening in Black Widow leather) had helped vault Trump to the American presidency. Trump, more than any other president-elect, has sought out hedge fund types, from Steven Mnuchin, his choice for Treasury, to David McCormick, a leading contender at Defense, heralding a new lucrative era for American finance.

But Trump or no Trump, this year marked the beginning of the end of hedge funds as we’ve known them. Their investors are joining a growing revolt, spurred by years in which fund managers grew rich while producing little in the way of returns. In 2016, big money clients finally decided to bail. “Let them sell their summer homes and jets and return those fees to investors,” one New York City official said in a nod to the populist wave that swept Trump into the presidency.

“There has been a massive blowback from public pension funds and private endowments,’’ said Craig Effron, who co-founded his Scoggin Capital Management nearly 30 years ago. An investor told him recently that many chief investment officers are so fed up that they would prefer to entrust their cash to a trader who charged no management fee, over one who did, even if they expected the latter to make them more money.

Public retirement plans from Kentucky to New York, New Jersey and Rhode Island have decided to pull money from hedge funds. So did a state university in Maryland and other endowments. MetLife Inc. and other insurers followed suit. Money-losing firms were forced to reduce their fees. Client withdrawals ($53 billion in the last four quarters) drove some managers out of business, including veteran Richard Perry, who until recently had managed one of the longest-standing and better-performing firms.

Hedge funds largely traded on regulatory arbitrage, using a limited membership to skirt regulatory attention, and in the early days, they achieved impressive returns by exploiting what they called “Market Inefficiencies”. (People would call it insider trading, burning businesses down for the insurance money, and front running)

Over the past 30 years, the number of firms have grown, so there are more firms chasing returns, and since the financial crisis there has been more supervision, so their fees, typically 2% of assets under management plus 20% of any gains, have increasingly been seen as excessive, particularly since there have been given stories in the financial and mainstream media about how their opaque structure has led to a lot of self dealing.