Any truly successful fund closes itself from investors. If you really generate profits, there is no reason to give it away after AUM reaches certain level.
Most hedge funds don't gamble, but some do have poor risk management (e.g. Melvin Capital).
The proposition of a hedge fund is actually very compelling to institutional money: range-bound returns in any type of market environment. This proposition bodes very well for say major pension funds that want to avoid market risk while also modeling out return + pension liabilities at an assumed rate of return.
Take some risk profile and then bet that low cost automatically balancing stock/bond Vanguard fund beats 90% of hedge funds over 10 years based on risk adjusted return.
That would be a closer "apples to apples" comparison vs. Buffett's bet.
Money is not a limiting factor, risk is. If you have a low risk strategy, you won't have problems borrowing money to invest in it.
Its not silly, because the amount of reward depend on amount of risk.
So, if you compare returns of different strategies/funds, you need to first rescale them to the same amount of risk
1. You invest $100,000 into a fund which has a 1% chance of returning 100% and 99% chance of returning -100% each year.
2. You invest $100,000 into a fund which has a 20% chance of returning 100% and a 80% chance of returning -100% each year.
The possible payouts are the same. The expected values are not. Given the opportunity to invest in both with no difference in fees or other structure, would you leave your decision up to a coin flip?
1. 10% chance of returning 100%, 90% chance of 0%
2. 90% chance of returning 10%, 10% chance of 0%
Same expected value in year 1, but totally different proposition. And, with compounding returns, the expected value over time is very different.
Hedge funds have both management and performance fees. Management fees exist because whatever the result, there are employees that worked to deliver it. I don't see why you think that I appropriate.
Performance fees are never structured so that incentives align. You will eventually get high-water mark (HWM) performance fees just because there is random fluctuation.