Why Hedge Funds Are A Rip-off

Look at John Paulson's funds.  According to the article, Paulson's funds manage $38 billion.  One fund is down nearly 20% (admittedly, not all of his funds are performing this badly.  But even if they were, his company is going to bank $760 million just for their 2% management fee.  If the funds gain value, his firm gets 20% of those gains, too.  Heads, I win.  Tails, you lose.  That doesn't even begin to deal with how leverage will cause those gains and losses to be so dramatic.  Why "sophisticated" investors go for this rip-off, I don't understand.