Shakeout looms for hedge funds as returns are eaten by excessive fees

FOR decades, the standard marketing push for hedge funds has been that the funds, by their canny ability to read markets and hedge exposures, should help portfolios preserve capital in bear markets, and outperform when markets are strong. Depending on the strategy, that has mostly been the case even through financial crises.

Lately however, the dissenting voices have been louder and disillusionment deeper, to the point that some large institutions have actually begun to exit from hedge funds. The California Public Employees' Retirement System (Calpers) announced its exit from 24 hedge funds, or a portfolio of US$4 billion in 2014. More recently, the New York City's pension fo…