NEW YORK — Long considered the titans of Wall Street, hedge fund managers have long thrived under a simple premise: They are smarter than the average investor and can produce bigger profits.

That image of the slick, well-connected trader, making bold bets with hundreds of millions of dollars, has attracted trillions from wealthy investors, pension funds and endowments who were willing to pay high fees and hand over 20 percent of any profits to the elite class of traders.

Now, though, many investors are reconsidering. Hedge funds produced returns of about 5 percent last year, according to Hedge Fund Research, compared with the 10 percent rise of the Standard & Poor's 500-stock index, a broad collection of stocks that is trading near record highs.

Investors have responded accordingly, pulling $111 billion out of the industry in 2016, according to eVestment, an institutional investor data firm. More than 1,000 funds closed their doors last year, the largest number since the 2008 financial crisis.

Many of the advantages the industry relied on for decades have started to disappear, industry experts say. There are more hedge funds placing the same type of bets. And finding a unique idea, an undervalued company or one with flaws that no one else has spotted, is becoming more difficult, particularly at a time when so many stocks are rising, they say.

"The hedge fund industry has started to collapse on itself," said Charles Geisst, a Wall Street historian at Manhattan College in New York. "There are too many players going after the same thing."

The industry's troubles began after the financial crisis, when shocked investors saw the value of their investments plummet, industry experts say. They had expected savvy stock pickers to shield them from the widespread losses facing everyday investors.

"That made investors more aware," said Alina Lamy, senior analyst for quantitative research at Morningstar Research. "Plus, they are much more expensive. Why are we paying you more if you are not giving much more return?"

Indeed, during the economic recovery — which pushed stock markets to record levels — those who put their money in passive investments were rewarded. Over the past 10 years, the return for passive investors was 5.7 percent annually, while those with money in active funds had 5.3 percent annual returns, on an asset-weighted basis, according to Morningstar. More than 90 percent of large-cap active funds, those with at least $6 billion in assets, underperformed their passive counterparts, according to S&P Dow Jones Indices.