Jim Cramer offers some good and bad comments about hedge funds here. His conclusion:
In the end, the lesson to be learned from Amaranth isn’t about a sole runaway manager who made bad bets on the weather. It’s about broad institutional problems: how hedge funds are run and monitored, and who’s investing in them. Hedge-fund strategies have become so obtuse, their sales pitches so aggressive, and their monitoring so lax that one could question whether anyone should be in these funds, let alone pension-plan managers who have no ability to judge what these funds are doing and are supposed to invest regular folks-money in relatively safe places. Sure, pension funds that opt out won’t generate the huge returns that hedge funds do in good times, but more important, they won’t get crushed in the bad ones. The simple truth is that only the rich, who can take the hit, belong in these funds. And even they should proceed with extreme caution.
As I commented recently on Christopher Cox’s similar views, what about mutual funds? They can’t go down? To keep lumping all hedge fund strategies into the same camp is not an accurate portrayal of reality. Cramer is dead wrong when he implies the average guy should have no access to something beyond buy and hold long only. Of course, you need to be careful and do your homework, but that’s the case for just about everything in life these days.