Well, the reality is that the top ~5% of hedge funds generate all the returns and have real alpha. The rest are beta + noise - transaction costs. Not dissimila

Well, the reality is that the top ~5% of hedge funds generate all the returns and have real alpha. The rest are beta + noise - transaction costs. Not dissimilar to the way venture returns are distributed. Only the top startups manage to become big companies and provide a sizable return to their investors. So hedge funds get away with it the same way most startups get away with it. For better or for worse, the investors do not have the ability to accurately discriminate.