Some hedge funds are nimble, like CTAs; most simply are not. A fundamental stock picker holds positions for years, and illiquid investments like distressed debt look more like private equity. Large funds can’t exit large positions quickly. Moreover, “nimble” only matters if managers can anticipate a market decline and step out of the way—unfortunately, the evidence is clear that hedge funds are no better at this than the rest of us. For each hedge fund that presciently (or luckily) cut risk pre-Lehman, another bought on the first dip and walked into a propeller. Managers who tried to imitate the former cut risk at the wrong time in 2011.

Shorting tech in 2001-02 added value relative to the S&P, and when LIBOR was 6 percent, interest on short proceeds added 200 bps of alpha. Post-crisis, short selling has been about risk control, not alpha generation. First, stock lenders got smart and started to charge more for popular shorts. Second, big hedge funds got really big, so capacity-constrained individual shorts don’t move the needle. Finally, LIBOR at zero means no interest on short proceeds.

Hedge fund allocators chase returns like everyone else with little to show for it. There simply is no evidence that hedge fund returns persist. When 15 percent or more of hedge funds go out of business each year, the industry is good at shooting the wounded and burying them. The “survivors” typically have outperformed their dead colleagues by 400-600 percent per annum—a gigantic sum. The only guarantee is that today’s stars will raise a lot of money.

It depends on what you mean by “hedge funds” and “volatile.” CTAs should do well in a steep and persistent bear market, but get chopped up in volatile yet range-bound markets. Some fundamental hedge funds wait for blood in the streets to make a huge bet on a recovery, but most won’t sit on cash during bull markets. Instead, most hedge funds perform better in stable markets: long-side alpha from stock selection has been positive 2-3 percent per annum in stable markets, but negative 4-8 percent in down markets.

The only people who believe this today are those who pick hedge funds for a living. Simple top-down replication strategies have outperformed funds of hedge funds by 100-200 bps per annum over the past decade. Factor in the benefits of liquidity, and it’s much higher. The debate is over.

This is only true if you know in advance who will outperform.  Sure, Millennium, Renaissance or SAC killed it despite astronomical fees, but hundreds or thousands failed to cover the 2/20. High fees can lead to excessive risk-taking by raising the bar: To return 8 percent to investors, you need to hit 12 percent before fees. That’s much, much harder than hitting 9 percent to deliver 8 percent net.

Only true to the extent that stock selection drives factor tilts. Hedge fund alpha in 2005-07 came from a big factor tilt into emerging markets stocks when they outperformed the S&P 500 by 30 percent or more per annum. As much fun as it is to hear stories about an individual stock, a single position typically won’t move the needle enough to matter.

Pre-crisis, yes; post-crisis, no. In a slow-growth world, hedge fund longs have a higher beta than shorts. Plus, everyone is a “quality” investor today.

Certainly true for a $20 million hedge fund; obviously false for a $10 billion fund. When 80 percent of alpha is paid away, investors bear the risks and managers reap the rewards.