Interesting piece. You leave out the critical element of the imitative nature of hedge fund allocation and what this has done to the creation of new strategies. Given the fact that most strategies are forced to comply with “style boxes” to receive allocation from LPs, they copy previous strategies to fit more easily. Doing this means that the competitive nature of the strategies is more intense than it otherwise would be. This is simply a natural evolution of the industry, as all industries follow the “3 I” framework of Buffett over time (innovators, imitators and idiots).
Unsurprisingly, emerging managers are an exception to this rule according to research. In other words, when new strategies emerge that are different than what came before, they have an ability to have edge and actual Alpha. This should continue over time.