Oh, boy.
Hedge funds, i.e., multi-billion dollar investment firms created just to sell exotic stuff to institutional and very rich individual investors (you can't sell such things to the general public, see), are themselves going public.
This means that management won't be on the hook when that exotic stuff makes losses -- rather, those losses will be spun off to shareholders. I expect that the hedge fund management, meanwhile, will get fixed salaries on top of bonuses for profits made.
This presents something of a moral hazard, to say the least. This is the now-familiar "private gain, public losses" problem. Otherwise known as "betting with someone else's money, but keeping the winnings." Or, as known by more serious writings, "excessive risk-taking."
Theoretically, hedge funds can sell exotic assets, i.e., assets that are non-public and therefore not subject to the SEC's reporting and transparency requirements, to institutional investors and rich people because those folks are savvy enough investors to watch out for their own interest. At least according to the law. So issuers cooking up these assets don't need to publish their financial statements (and prepare them in accordance with GAAP), nor distribute 10-Ks and 10-Qs to the market.
Of course, these investors didn't do such a bang-up job avoiding the subprime mortgage-based assets. They have their own moral hazards to deal with -- nevermind that anyone might be ill-equipped to deal with the kind of complexity that characterizes capital markets lately.
And nothing's changed to expect they'd do a better job in any other new-fangled, and risky, security to spin around the market.
Add on top of that the hedge fund's reduced incentives to monitor risk itself, due to going public.
I sure hope your pension fund isn't a one of these hedge funds' clients.
