Indeed it's not at all unreasonable that the largest firm would be < 1% of the market.
In fact it's fairly logical, given that:
A) hedge funds are pursuing strategies where the individual investment opportunities are often fairly small (this is taken to the extreme in high frequency trading with many trades each yielding small returns), and;
B) funds typically adopt a small number of strategies (e.g., 1)
Consequently it's more difficult for large funds to find consistently good investments and thus there's a proliferation of small(er) funds.
(Alternatively, if you believe in the Efficient Market Hypothesis much of individual funds positive or negative returns are dumb luck. It's then simply a matter of the fact that the probability of a fund having consistently positive returns -- and consequently having $125bn AUM like Bridgewater -- are exceedingly rare.)
