Hedge funds are money machines – at least for their managers. The much-quoted two-and-20 fee structure is, on average, actually more like 1½ per cent of assets under management and 20 per cent of any gains. That is still expensive compared with mutual funds, which usually charge less on assets and nothing for performance.

The hedge fund industry is getting crowded and average net returns have been unspectacular in recent years. That makes the existing structure more difficult to defend. A 10 per cent gross return, for example, becomes about 6.5 per cent for investors after fees. With two-year US Treasuries offering risk-free yields of almost 5 per cent, the trouble and risk of investing in hedge funds might not seem worth the effort.