Most hedge funds can only dream of SAC-style returns "The trouble is," says one hedge fund manager to another, joking, wistfully, on the fate of SAC Capital, "that 99 per cent of hedge funds give the other 1 per cent of us a bad name." SAC - charged last week with insider trading - happens to be one of the most successful money-making organisations yet assembled. It is not only a "magnet for market cheaters," according to US prosecutors, but also, the inference goes, a model for a whole $2tn law-skirting industry. Hedge funds, never beloved, have never been more put upon. The FBI's wide-ranging insider dealing probe has raked up dozens of wrongdoers across Wall Street and triggered the collapse of four blue-chip speculators: Galleon, Level Global, FrontPoint and Diamondback. Newspapers are running out of space for sprawling multi-coloured spider diagrams populated by information hucksters and billionaires. "Without a doubt, this is the worst crisis the industry has faced," say breathless press releases from ambulance-chasing law firms. And yet most hedge fund managers can still only dream of being Stephen Cohen, the billionaire founder of SAC who will be brought down if US law enforcers have their way. Versus SAC's annual historic returns of 30 per cent, the average hedge fund manager has made just under 8 per cent, according to data provider HFR. Of late that performance has been worse. Since 2010 the average equity hedge fund has made just 14 per cent on its investors" capital, compared with a return of 55 per cent, with dividends reinvested, on the S&P 500. Indeed if the hedge fund industry has an insider trading problem, it might be that it needs to find a few more expert insiders. Hedge funds" performance crisis goes some way to explaining why the SAC case has failed to rattle most people in the industry, who have problems closer to home to contend with. Last year saw a series of high-profile retirees, from Greg Coffey, the well-coiffed Antipodean once offered $200m for not leaving his job, to Chris Rokos, the billionaire 30-something whose vast, eve-of-the-crash Kensington house conversion irked his neighbours. Versus SAC's annual historic returns of 30%, the average hedge fund manager has made just under 8% For those trading superstars who remain, performance anxiety is so much of a concern that big hedge funds have taken to hiring sports psychologists to help addled employees cope with losing. What has been remarkable, though, in the face of this painful shift out of adolescence into the real world and all its disappointments, has been that, so far, hedge funds still get away with charging so much. The industry has continued to grow at a great clip, lacklustre returns or not. In five years - hedge funds" worst on record - total assets have jumped from $1.4tn to $2.4tn. SAC's travails are something of a sideshow to this paradox. As with insider trading, though, it is the small investors that lose. For pension fund managers in charge of people's retirement plans, hedge funds have promised salvation: equity-like returns with low bond-like volatility. Few investments could seem more attractive with bond yields at historic lows. What has been remarkable is that, so far, hedge funds still get away with charging so much As a result, in the rush to recoup losses after the financial crisis, few pension funds have stopped to ask why they are willing to pay hedge fund managers the same fees as the industry charged five years ago, for half the return. Assuming, with some rough mathematics, that investors paid "two and 20" on their hedge fund investments last year - which returned all of 6.3 per cent - then the industry charged fees of $78bn. By way of contrast SAC - which is accused of insider trading, or, in effect, swindling ordinary savers in the mutual funds that make the backbone of most Americans" 401 (k) pension plans - is being targeted for about $10bn in alleged ill-gotten gains over its lifetime. Be it through insider trading or over-charging, that group of ordinary savers seems to get a raw deal from the hedge fund managers in Mayfair and Connecticut. There are, of course, many hedge funds that do warrant the fees they charge - and the returns they promise, and deliver, have never been more needed by pension plans. But the reality is that they make up only a portion of what the industry has become. It's not that 99 per cent of hedge fund managers give the top percentile a bad name, but rather, that the 1 per cent give the rest an undeserved good one.