Some of them can, have and do (e.g. Point72, Renaissance, Soros, et cetera). This extends to many more funds [1]. Furthermore, some institutions (e.g. Yale) are consistently good at picking those funds [2].

The average hedge fund seems to eat all its excess returns in fees. But around a third of all hedge funds, mostly upstarts, die in the first few years [3].

By analogy, if you can understand that Kleiner and Google create excess returns while most VC funds do not, you can understand why a similar exponential dynamic is at play with hedge funds.

[1] http://www.investmentreview.com/files/2009/12/18-241.pdf

[2] http://m.pionline.com/article/20141222/PRINT/312229982/big-p...

[3] https://www.forbes.com/forbes/welcome/?toURL=https://www.for...

Great response. I personally agree with Point72 but avoid using them as an example. In my experience it attracts the argument that their returns are illegitimate due to illegal insider trading, which draws the focus away from others like RenTec and Soros.