In this study, I examine whether low R² funds are exposed to higher equity systematic tail risk that is not accounted for in the existing multi-factor models used to evaluate hedge funds. With a parsimonious set of risk factors that includes systematic tail risk, I show that there is a significant increase (about 12%) in the R² for funds in the lowest quintile of R². In contrast, the increase in R² for funds in the other quintiles of R² is relatively modest (about 2%). Moreover, I show that the spreads between the future performance of low and high R² funds narrows by about 9% after accounting for the systematic tail risk factor. I also show that 90% of the decrease in future performance spread is driven by accounting for tail risk in the low R² funds. My results provide evidence that superior performance of low R² funds may not be entirely attributable to higher managerial skill, and that systematic tail risk of such funds can partially explain why they perform well.