Hedge Funds Hit Limits

When it comes to hedge fund returns, size matters.

So far this year, hedge funds have returned an average of 2.42%, according to data compiled by Standard & Poor's. That's below the S&P 500's return of 3.76% and, barring a huge December, sets the industry up for its second straight year of disappointing returns.

Numerous explanations are given for the problem, including sluggish markets and too many managers chasing too few strategies. But one overlooked factor is that funds are getting larger. ...