The outlook for hedge funds, already closing at the fastest pace since the financial crisis, is about to worsen, according to Citigroup Inc.

Industrywide profits in 2014 declined 30% from a year earlier to $21.9 billion because of poor performance, the bank estimated in a report. Hedge funds returned an average of 1.4% in 2014, their sixth straight year of underperforming U.S. stocks, according to data compiled by Bloomberg,
and the worst since 2011.

Hedge funds typically collect a management fee of about 1.5% of assets and a performance fee of 18% of profits. That can mean billion-dollar fortunes for some managers who exceed benchmarks, and for larger firms, they can still cover costs.

Average hedge fund returns have shrunk as the industry has exploded in size to $2.8 trillion from $973 billion in 2004. The industry has shifted as investors gravitate to larger, more established managers. Some banks, including Bank of America Corp., are also cutting prime brokerage ties or increasing fees for hedge funds that don’t meet profitability targets.

Weak returns combined with record-high industry assets mean that management fees now account for a bigger share of total profit than revenue from performance fees in years when returns slump, according to the report. Last year it was almost 2.5 times greater, Citigroup said.