Yes it's beta and yes it's what's expected, but the hedge fund industry has historically claimed that returns are coming from alpha (investor skill) rather than

Yes it's beta and yes it's what's expected, but the hedge fund industry has historically claimed that returns are coming from alpha (investor skill) rather than beta (riskiness). There's the claim now that they are picking the right kind of beta to attempt to justify what papers are finding, but the outperformance that is exhibited by some hedge fund managers doesn't usually persist, suggesting that their selection of the particular risks were not a result of their skill. If the returns are actually from "dumb" beta, then the hedge fund fees are not appropriate for what you're getting. You're getting market returns appropriate for the amount of risk that's being taken, rather than outperforming, and then losing most of that to fees. Yes, exposure to beta can be a smart choice, but it can be done without excessive fees. >Where hedge funds play a role in investment management is when individuals can select hedge fund managers they believe will outperform Yes, this is the common refrain in mutual funds too: Buy the top performing managers, not the average fund. But the research shows that hedge funds that outpeform do not persist in outperforming. This suggests that the managers are not being particularly skilled in their selection of risk. Most fund of funds do not perform significantly better either -- there's little evidence that hedge funds are providing investors real value. Hedge funds are a status symbol for the wealthy, not a smart investment.