Hedge Fund Correlation

Hedge fund returns have become gradually more correlated to the S&P 500*.
This is bad for diversification and when combined with falling alpha, as described in this post, is worrying.
*This chart shows the 10-year trailing correlation of hedge fund returns (measured by a 50/50 weighted after fee return of Barclay Hedge Fund and HFRI Fund Weighted Composite Indices) vs. S&P 500.