Hedge funds have started bashing themselves — here's what they're saying

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It's no secret that hedge fund performance is lagging.

The average hedge fund is up about 1.9% through July this year, and was down -0.6% last year, according to data tracker eVestment.  

Some big-name funds have even started to cut staff as investors balk at paying high fees for lackluster performance. 

That has led to much soul searching. Why are hedge funds doing so poorly?

Here are some of the most cited excuses funds use for the underperformance.

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Everyone looks the same

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Doug Haynes, the president of Steve Cohen's family office Point72 Asset Management, said that the industry's lack of diversity in thought is causing its problems. 

Groupthink on trades is a big problem, and much of that is caused by people in the industry having come from the same schools, studying the same things and being predominantly male, he said.

They're too big

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Some funds are getting too big and chasing the same strategies, according to a recent Barclays survey.

"[T]he issue is likely not the growth in size of the overall HF industry, as there appears to be an ample supply of assets," according to the report. "The issue may be, however, the growth in size of many individual HFs, which are pursuing similar strategies leading to crowding."

The report surveyed investors in hedge funds managing about $8 trillion in total.

There is a lot of mediocrity

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Howard Marks, cofounder of Oaktree Capital Management, had some scathing words for the hedge fund industry earlier this summer.

"In 2004, I said today there are 5,000 hedge funds, and I don't think they're run by 5,000 geniuses. Today we're probably up to 10,000.

"The performance of the greatest hedge funds run by geniuses, and their closing, created a big umbrella over this industry, which permitted the other 9,990 hedge fund managers to start hedge funds and command hedge fund fees."

In other words, the hedge fund industry was launched by a handful of genius investors (Marks could be referring to people like Jim Simons), and the rest of the industry has followed in their path, despite not being as smart or as profitable as their forebears.