L/S Hedge funds with the best track records?

I know some SM funds that have mid-teens to low 20s annualized returns over a long period of time, including 2008 and this year's downturn, while taking on less risk than the growth funds you mentioned. You'll probably have never heard of them.

I'm going to caveat this by saying my view is limited to a growth industry as I'm a specialist. What is your benchmark for a "good" track record and "relative" underperformance? The benchmark is extremely important and the nuances of choosing the right benchmark with which to judge performance is often overlooked.

2/20 pushed a lot of funds to add net exposure during the prolonged bull market, either because they wanted to collect more fees or LPs rewarded that with additional capital to high absolute returns/redeeming underperforming funds that posted lower absolute returns. This led to selection bias toward funds that were essentially beta to whatever index (your growth funds in general) and excessive risk-taking to the point that their portfolios had large correlations with low liquidity. The whole point of paying 2/20 is based on expecting that a manager running net exposures can get off the train tracks before the train pancakes them, but if you were making a few hundred million USD a year during the bull market running levered long and diversified your personal wealth, and your LPs were happy with you every year-end party, why bother having any risk framework? In many cases, we're now we're seeing LPs add more to these funds that have huge drawdowns because they now benefit from a high water mark, and "the manager made them a lot of money in the past" (even if net after fees and recent drawdown, they're back to where they were in 2000's from an inflation-adjusted standpoint).

The funds that will come out of this as the "best performing" funds will be ones that few people have heard of because everyone (media, LPs, etc.) have done nothing but reward massive risk taking for the last 10 years when cash was free. To be fair, we are seeing some allocators starting to pay more attention to net exposures and risk controls, but I'm still surprised at the stickiness of LPs in funds that essentially drove everyone straight off a cliff and have been trying to say everything is ok while calling the bottom month after month for over a year while the bus was nosediving straight down with nothing to stop it. They are in "keep the wheels turning at all costs" mode now until the sector bottoms and begins eventually growing again. It's a race as to whether their private investments mark down and cash becomes more expensive before the sector turns around as I'm pretty sure most people don't understand just how much these funds' performances were dependent on non-fundamental-based mark-up, and now artificial levitation, of private investment valuations, and fund NAV may, in reality, be much lower than what they are reporting. Like everything in life, funds are a function of the incentives and pay structure that support them, and the market/society rewarded excessive risk-taking for HFs rather than running proper risk controls for a very long time. Many investors in my sector gave a lot of shit to Cathie Wood about how she presented ARK, but at the end of the day, they were essentially doing the same thing for their clients but just wrapping it up in more expensive packaging.