Every time a hedge fund blows up, the press duly reports the pensions that were invested. There is usually some public outcry but things rarely change. Massachusetts, New Jersey, Pennsylvania and California all had money with Amaranth, and I do not expect them to give up on hedge funds any time soon. In fact, they will likely boost their allocations, along with other pensions. Now, all this seems rotten when funds blow up. In reality, for savvy pension managers who understand diversification, hedge funds can be a valuable tool. This may or may not be smart, but most pensions are savvy to the fact that they face some significant payout issues as the boomers retire. They need big returns now. Which will continue to make hedge funds attractive. 

For more on pensions:
- Here's an AP article