(Lucy Nicholson/Reuters)
Cadence Cirlin, 3, plays in the garden of a home decorated for Halloween in Los Angeles.

There's a colloquialism that hedge fund managers are "masters of the universe."

These investors take big risks betting on the market, but the reward has usually been pretty significant.

Let's not forget, five hedge fund managers made over $1 billion in 2015.

Based on recent outlooks, however, the reign of these "masters" may be coming to an end.

Everywhere you look, it appears that doom and gloom is surrounding the industry. From competitors to analysts and even to the managers of hedge funds themselves, everyone is acknowledging that these funds are going through a rough patch.

It's all over

Let's get the obvious out of the way: Hedge fund performance is abysmal. Funds are underperforming their benchmarks and many are losing investors money. For an industry that is founded on the idea that it can produce alpha, or better returns than the broad market, even being in-line is a disappointment.

Hedge funds typically charge high fees to deliver the alpha to their investors. When they're not performing, more attention is paid to these fees. That focus has coincided with the growth of lower-cost alternatives, such as liquid alternatives, which provide hedge fund-like investments with lower fees.

Add that up and you've got some problems. Tony James, president of private-equity giant Blackstone, told Bloomberg this week that he expects one-quarter of all current assets in hedge funds to be yanked out in the next year.

"It’s kind of a day of reckoning that we face here,” James told Bloomberg TV. “There will be a shrinkage in the industry and it will be painful. That’s going to be pretty painful for an awful lot of places.”

A 25% drop in assets might sound pretty dramatic, but there are those who think it may be even worse. K.C. Nelson at alternative investor Driehaus Capital Management, expects a brutal reduction in the number of funds over the next few years.

"I believe there will be a culling of hedge funds like we've never seen before," he said in a letter to investors. "I'd estimate the number of funds gets cut in half over the next couple of years."

Even Dan Loeb, manager of the hedge fund Third Point, said that it has been "one of the most catastrophic periods of hedge fund performance" and that many funds won't survive.

"There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies," he said in a letter to investors in April.

(REUTERS/Steve Marcus)
Dan Loeb.

Now questions are being asked about the entire hedge fund business model. According to Brad Balter, CEO of Balter Capital Management, the model has broken down, and there is nothing to do to repair it.