Hedge funds blowing up helps pay for pensions (opens in new tab)

I read that. When a hedge fund blows up, the pension funds that invested in it lose all their money. That's all there is to it.

The linked article presents a straw man that the only two hedge fund investing options are "risk-free" and "occasionally blowing up", and since we can't have the former we have to accept the latter.

But the Archegos-Credit Suisse case shows clearly that there is a middle ground, that much can be done to prevent blowups. The big banks just don't bother. Proper risk management by banks would help pension funds much more than simply negligently letting hedge funds blow up.

The unstated assumption in the above paragraph is that net returns from hedge funds, accounting for losses from blowups, are still high enough to warrant pension funds investing in them. But experience shows that's not the case, e.g.:

"I know in the long term private equity is supposed to give us very healthy returns, but that of course has not been the case for quite some time,” said Sung Won Sohn at Tuesday’s board meeting. “It’s been anything but healthy returns…"

https://www.nakedcapitalism.com/2021/04/lacers-board-member-...