That’s the assertion two academics have made in a paper that takes a cynical view of hedge funds’ ability to generate alpha. In it, Dean Foster, a statistics professor at The Wharton School of the University of Pennsylvania and H. Peyton Young, a senior fellow at the Brookings Institution, say it’s not difficult for HF managers to convince investors into believing they have the talent to do what they claim they can – and as a result, investors can’t tell the truly good hedgies from the bad. They write in The Hedge Fund Game: Incentives, Excess Returns, and Piggy-Backing, that while on the surface HFs appear to build into their contracts incentives to make their managers produce good results, “there is no way to write an incentive contract” that can differentiate between the hard-workers and those who scam investors by producing returns in non-alpha ways. The authors present a hypothetical that demonstrates that there is a six in 10 chance that barring any sudden market downturn, a fund can operate well without using alpha-generating techniques for five years. Foster and Young use the example to make two points: It’s “extremely difficult to detect, from a fund’s track record, whether a manager is actually able to deliver excess returns, is merely lucky, or is an outright con artist.” The second point is that “it is essentially impossible to redesign the incentive structure so that it keep the con artists out of the market.” As for investing in hedge funds in the long term, Foster