People (and actually it's institutions, mostly) who invest in hedge funds are sophisticated investors. They know full well what the managers are being paid and presumably feel they are worth it.
They were back when they were regularly producing 12-20% returns. That hasn't been the case for years. I can't imagine why anyone is still in a 2/20 hedge.
The fact that they keep their money with the manager? Sure there might be a few people who don't know what they are doing (lottery winners?) but if you have enough money to buy into a hedge fund, you more than likely are paying attention.
I don't see why you think A applies B at all here. I have worked both in institutional investment and in a hedge fund, and it's pretty fucking hard to read a term sheet for anybody.
