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The "market average" like S&P is the expected return of passive investment - doing nothing, so that's why it's a reasonable benchmark. This (not 0%) is the straightforward default alternative investment, the one against you can measure an opportunity cost.

The point of hedge funds is that they can do better than that, but charge a fee. However, if you get worse results than doing nothing, then the fee seems unjustified.

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The commenter you're responding to is aware of all of that, as he works in the industry. With regard to "the point" of hedge funds, what you're saying is not actually correct - the S&P500 is not necessarily an appropriate benchmark for comparison because it doesn't share the same risk profile. Concordantly it is not necessarily a failure if a hedge fund achieves a lower return than the S&P500 depending on its beta exposure.

In general, the S&P500 presents the most cursory comparison metric for hedge funds, but not necessarily the most accurate. This is specifically why we have the term, "risk-adjusted returns."

Excellent comment

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