Are Hedge Funds Too Big to Outperform?

Given that hedge fund assets are 8-10% as large as mutual fund assets, is the asset class too big to outperform? 

Soros's argument is that given the prevalence and power of hedge funds as an asset class, they cannot outperform. It is almost a tautology that not everyone outperform the market, but has this alternative asset class reached such a stage? The hedge fund tendency to lag equity markets are a recent phenomenon and to be fair, is a not exactly a fair comparison. After all, if alternative investments are meant to be less correlated with the market, doesn't that by definition include the possibility of under-performance?

Nonetheless, there is no shortage of studies showing how smaller managers outperform larger ones. Moreover, asset growth often goes to the larger, established ones and ones with the most best marketing/sales force. Perhaps the best example is this article about changes in the industry, quote below:

[Hedge Funds] need to excel in three areas which include: having a high quality product offering, a marketing message that clearly and concisely articulates their differential advantage across all the evaluation factors investors use to select hedge funds, and finally, a best-in-breed sales strategy. This sales strategy can be achieved by either building out an internal sales team, leveraging a leading third party marketing firm, or a combination of both. Firms that do not excel in each of these three areas will have a difficult time raising assets.

Compare this quote with this article from nymag from a few years ago:

It doesn’t take much. To run money, which is how managers refer to what they do, requires little more than a few computers. Zach’s boss likes to say, “I could run $100 million by myself.” The theory is that they’ve got an almost athletic gift for investing. They’re the type who can, as one manager did, call the direction of the market correctly 22 days in a row. They don’t want (or need) the kind of marketing, sales, and investor-relations apparatus that comes with, say, a mutual fund.

Now, the latter is of course hyperbole, but to me the intent is clear. The core of managing money to outperform is to focus on investing/trading, not top-notch third party providers, sales/marketing etc.

In short, the alternatives industry is not so alternative anymore, and in my opinion the institutionalization of the industry is exactly how most (and in aggregate) won't outperform.

*Funny doc I came across while researching marketing docs: this looks like a well-put together marketing presentation, and they have pwc as auditor + citco as fund admin, both large, well-known providers. Unfortunately, they had a sad ending.