The real battle in hedge fund land is the choice between buying a hedge or buying an alternative risk premia product often in the form of a swap. The ARP products were created to provide a low cost way of gaining exposure to long-short risk premia factors through total return swaps. The risk premium you have often seen described in the finance literature can be packaged in a form that does not have the same high fees as hedge funds and do not include incentive fees.
They are not perfect. You must manage the exposure as opposed to having a manager control the risks, yet it provides a simple way to gain access to momentum, carry, and value across all major asset classes. This paper is a few years old but it makes a strong case for ARPs, see "Hedge Funds vs Alternative Risk Premia" by Philippe Jorion.
The burden is now on hedge funds to provide a unique return profile that is can dynamically adjust exposures or have a unique strategy that cannot be easily translated into an index that can be placed in a swap form. Bank risk premia swaps are intermediating the hedge fund market with exposure, trading, operating, and leverage expertise. In fact, the ARP products are cheaper so if they can closely match hedge fund gross returns, they will have a cost advantage.
The development of ARP factor exposures is no different than the factor and index boom for long-only investing. If you can buy an index associated with a specific factor like size which will provide most of the desired exposure, the burden is on the active manager to provide alpha relative to that factor or benchmark.
Can you find better hedge fund? Yes, but now there is an alternative which places the burden on the manager to prove their value.
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