Many financial analysts have complained that hedge funds offer lackluster returns for outrageous fees.

Public pension funds apparently agree. Some of them are reducing their hedge-fund exposure, The Wall Street Journal reports.

That includes the California Public Employees' Retirement System (Calpers), the country's largest public pension fund. It will likely slash its hedge-fund allocation 40 percent this year to $3 billion, a source familiar with the move told The Journal.

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The Los Angeles Fire and Police Pensions fund decided in 2014 to sell all of its hedge-fund holdings, after it earned a return of less than 2 percent in seven years on a $500 million investment, the paper reports.

At the same time, the fund was paying $15 million a year in hedge-fund fees. "We were ready to move on," Ray Ciranna, the fund's general manager, told The Journal.

The HFRI Fund Weighted Composite Index of hedge fund performance gained 3.2 percent in the first six months of the year, compared to a 7.1 return for the S&P 500 index. Even seven-to-10-year Treasurys have returned 5.7 percent so far this year through July 23, according to Barclays.

To be sure, many big investors remain enamored with hedge funds. A whopping 97 percent of 284 institutional investors surveyed by Credit Suisse said they plan to be "highly active" in devoting money to hedge funds in the second half of the year, CNBC.com reports.

"The money is coming from institutions, which are smart money, that understand the risk inherent in both the stock and bond markets right now," Brad Alford, chief investment officer of Alpha Capital Management, told CNBC.com.

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