If you look at the Dow (I know I know, small sample) over the last 10 years[0], it doesn't take a genius to see the emotions of the market over that time have been unease (year 1), panic (year 2), reluctance (year 3-6), and opportunistic (years 8-10).
After the next major correction, I wouldn't be surprised to see investors move back to hedge funds.
I personally remember enough cases like Steven A Cohen and Galleon and the Gerson-Lehrman group[0], that I assign the probability "likely" to that claim, so if someone says "unlikely" I ask him for his reasoning because I might need to update my estimates. I was not trying to say it is wrong, just understand his reasoning.
[0] https://en.wikipedia.org/wiki/Gerson_Lehrman_Group#Controver...
Which, in reality, was the SEC and Preet Bharara trying to say that large investors aren't allowed to have meetings with the execs and investor relations people at the companies that they were large investors in, which doesn't make much sense and was knocked down by the courts.
There was a lot more to "reality" than you make it out to be. E.g. there's this clown https://en.wikipedia.org/wiki/Raj_Rajaratnam#Conviction_and_... and 13 of his buddies who were all convicted and who are doing time.
And don't forget about Stevie Cohen https://en.wikipedia.org/wiki/Steven_A._Cohen#Controversy who managed to skate personally but whose hedge fund pleaded guilty to criminal charges and agreed to a $1.8 billion settlement.
Do you have a source that supports what this implies?
---
"Fees matter. That is the overarching sentiment that emerged from an online Wall Street Journal survey asking readers about their investment style and satisfaction as part of the Journal’s series looking at the rise of passive, or index-based, investing."
http://www.wsj.com/articles/readers-react-low-fees-are-drivi...
---
"Lower fees, as opposed to better performance, may be the big reason more investors are switching from active to passive. Morningstar found the investors in active funds improved their odds of beating passive funds by favoring funds with lower-than-average expense ratios."
"It's not so much about active versus passive as it is about fees," Morningstar's Johnson said.
http://www.cnbc.com/2016/08/29/investors-say-forget-it-to-ac...
---
And this has been going on for ten years, which implies a sustained shift of understanding rather than a blip:
What you have said is certainly true for the average retail investor that simply isn't legally allowed to invest in a hedge fund, of course.