Hedge funds have become an increasingly popular investment tool in the past decade, due to their general lack of correlation with stocks and bond markets. When evaluating using the Markowitz portfolio selection theory, hedge funds appear to offer a remarkable opportunity. Yet use of the Markowitz theory neglects three important qualities of hedge funds: the existence of significant autocorrelation, bias, and fat tails. Each of these three issues has been studied individually, but no literature exists in which their combined effect is considered. The purpose of the research reported here is to evaluate hedge fund performance incorporating these combined effects. The results indicate that hedge funds lose most of their attractiveness when accounting for the existence of autocorrelation, bias, and fat tails in the evaluation.