"Through mid-October, the HFR hedge fund index was about flat for the year, compared with a 1.7% price drop for the S&P 500. Once again, the same argument emerges for hedge funds, which usually charge a 2% management fee, plus 20% of any profits, as it did in August: We might not be doing great, but we’re doing better than long-only stockpickers. There are fair arguments to be made on both sides when it comes to how hedge funds fared during these recent tests, whether it’s for August, 2015’s first 9½ months, or longer stretches. It’s important, however, for hedge funds not to move the goal posts in mid-game. If they’re billed as a good vehicle for relative returns—beating the S&P 500 in down markets and lagging behind it in upswings, or some variation of that—that’s fair enough, if expensive compared with mutual funds. Hedge funds look less credible when they purport to offer absolute performance—that is, positive returns in any market—and then fall back on the relative outperformance argument when the going gets tougher. You can’t have it both ways, especially when you’re charging 2 and 20. "
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