Now, the days of easy money are over. After more than doubling in size since 2000, the hedge fund industry entered the final months of 2005 with almost no hope of reliving its past glories, at least for now.

Few investment strategies employed by hedge funds, such as fixed-income arbitrage, convertible bond bets and rapid-fire stock trades, made much money early in the year. By Sept. 30, the average fund worldwide was up 7.4 percent in 2005, according to Hedge Fund Research Inc., a Chicago-based firm that tracks the industry. In October, that return withered to 5.99 percent - a fraction of the gains posted in the golden years like 1999, when the average manager delivered 31.3 percent.

Generating standout profits will get even tougher. The proliferation of hedge funds and the emergence of megamanagers such as D.E. Shaw & Co. and Bridgewater Associates Inc. will make it harder to spot winning trades.

As returns dwindle, the hefty fees that hedge funds charge will cost investors proportionately more, says economist William Sharpe, who won a share of a Nobel Prize in 1990.

Funds typically collect a 2 percent annual management fee and take a 20 percent cut of profits. After expenses, hedge funds won't be such great investments.

''On average, the clients are going to get less than Treasury bills,'' says Sharpe, chairman of Financial Engines Inc., a Palo Alto, California-based financial planning firm.

If Sharpe is right, the repercussions will be felt throughout the financial world. Hedge funds are no longer the exclusive realm of the rich. U.S. public and corporate pension funds have invested billions of dollars in these funds. How wisely - or unwisely - managers invest that money will matter to the millions of U.S. baby boomers now nearing retirement age.

World's Largest Hedge Fund Managers

Rank Fund Manager City Assets Managed*

(in billions)

1 D.E. Shaw New York $19.3

2 Bridgewater Assoc. Westport, Conn. $18.7

3 Goldman Sachs Asset New York $15.3

4 Man Investments Management London $14.2

5 Farallon Capital Management San Francisco $13.8

6 Barclays Global Investors San Francisco $12.5

7 Caxton Associates New York $12.3

8 Citadel Investment Group Chicago $12.3

9 Maverick Capital New York $12.1

10 Och-Ziff Capital Management Group New York $'12.0

*As of Sept. 30. Figures may include related assets in separate accounts.

- Sources: Bloomberg, Hedge Fund Research