On the other side of the coin, there are index funds for fixed income too. That would be a better compare against hedge fund that primarily uses fixed income assets. (For hybrid hedge funds, there are hybrid index funds too.) Once again, the 2 and 20 payment structure makes it very hard for it to beat a 0.2 fee index fund.
And as for clearly better funds like A16Z and YC now, there have many numerous that have held that crown before. Fees and fund expansion have resulted in worse results -- allowing newer players like A16Z and YC to take off.
My argument is that I don't think it's clear who'll beat the broad market (for their asset class) once the fees are taken out. I suppose we disagree about the value of high-fee managed funds (whether VC, PE, Hedge, etc.). That's fine.
Anyway, enough digression from the discussion on hand.
Good luck to the founders in making their value proposition clear. I am sure there are lots of people want to invest in hedge funds but don't have the funds to invest directly. They will find this appealing.
