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I'm not in the finance industry, but articles like this one http://www.businessinsider.com/hedge-funds-returns-in-2015-2... where hedge funds returns aren't beating the market well having ridiculously high fees compared to something like an index fund seems strange. If the market is crowded, why isn't competition acting to reduce hedge fund fees to levels more in line with the amount hedge funds consistently beat the market?

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I'm not sure the fees are going to go down so much as that a ton of hedge funds are going to go out of business. There are many funds generating real alpha and have made outsized returns year after year (Renaissances' medallion fund has made something like 40% per year average since inception). DE Shaw, 2 Sigma, Renaissance, Tudor, Bridgewater, AQR have all historically done pretty well.

On the other hand, there are a ton of hedge funds that have never generated alpha in their entire existence and lack even the most basic modicum of skill.

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