Hedge fund investment good, but for who?

There is a difference between a thing having a good effect and a thing being a net good.

Take hedge funds, for example. They do produce a good outcome, in that they manage against investment risk. But that doesn’t mean that investing in hedge funds is a net good for the state’s pension fund.  Mike Stanton’s Sunday blockbuster on Rhode Island’s hedge fund gamble points out that there are lots of competing goods going on here.

Hedge funds do manage investment risk, there’s no doubt about that. But this management strategy has required a massive divestment from our workforce and a transfer of that wealth to Wall Street.

Ted Seidle writes, “paying huge pension fees to Wall Street hasn’t hurt the Treasurer’s campaign fundraising efforts.”

It’s reasonable to assume hedge fund managers would be willing to underwrite pension reform if reform means they make tons of money on the deal. Billionaire hedge fund manager John Arnold underwrote pension reform in Rhode Island with massive donations to Engage RI and now he is investing in pension reform in California, Reuters reports.