"It creates a ton of complexity (say if the investor takes some money out, you don't count the gains that this money would have earned since that point. Then imagine they put more in later - now you have to track the hypothetical returns on that new money, but not from the original investment but from the add-on time. Trust me the math gets heavy). It just proves unworkable for a fund with hundreds of investors to track everyone's benchmarks separately"

Computers are good for these kind of things. It isn't as if the hedgefund analyst has to use an abacus to calculate and record the data by hand inscribing stone tablets. I'm sure the existing procedures for other parts of the business (say valuing options) are equally or more complex and computers are handling them just fine.