Today's Outrage: Don't Mourn for Hedge Funds

Some hedge funds are dying off, but no need to mourn. Too many predators are bad for any ecosystem.
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It seems like the heady days of hedge fund hell are coming to an end.

JPMorgan Chase

(JPM) - Get Report

is closing down its hedge fund business

and

two Boston funds also decided to give up the game.

Apparently, the opportunities are drying up for hedge funds, which some say profit by manipulating the market with short sales, derivative plays and leveraged positions. (The truth is that nobody really understands much about what hedge funds do because they operate largely outside of the normal regulatory environment).

One way to interpret the decision by JPMorgan to exit the hedge fund business, following similar moves by

Credit Suisse

(CS) - Get Report

and

Deutsche Bank

(DB) - Get Report

, is that big banks are refocusing on businesses they actually understand.

This could also be a correction in the market, which became overrun with hedge funds.

For a while there, new hedge funds seemed to be springing up all over the place. Along with JPMorgan,

Citigroup

(C) - Get Report

,

Bank of America

(BAC) - Get Report

,

Wells Fargo

(WFC) - Get Report

and

Goldman Sachs

(GS) - Get Report

all joined the game, directly or indirectly or both. And they spawned many more hedge funds as their top traders left to start their own funds in search of even more wealth and glory.

With more than a trillion dollars in the hedge fund universe, we're talking about an incredible accumulation of market-moving potential.

Many funds boldly flaunted their power, giving themselves names like "Raptor Capital Management", which is one of the Boston funds that is shutting down. "Gyrfalcon" was the name of the main fund managed by Noble Partners, the other Boston group that's closing down its funds.

Birds of prey - nice imagery there. But I'm not saying all hedge funds are bad or that having an ominous-sounding name implies any wrongdoing.

Hedge funds can play an important role in the markets. Some used their power for good, supplying capital, playing the role of private equity investors or buying large stakes in companies and serving as activist investors to bring about changes.

Even those funds that play a more rapacious role serve a purpose. Whether we like it or not, every ecosystem needs predators in the food chain.

But when there are too many predators, the whole system breaks down. Fortunately, ecosystems have a natural tendency to return to a more balanced state. And that's what is happening now.

So there's no need to mourn the death of a few hedge funds.

Hall is the editor of

TheStreet.com

. Previously, he served as deputy editor and chief innovation officer at

The Orange County Register

and as a news manager at

Bloomberg News

in Frankfurt, Amsterdam and Washington, D.C. As a reporter, he covered business and financial markets, worked in both print and television in the U.S. and Europe, and conducted in-depth investigative coverage at

The Journal-Gazette

in Fort Wayne, Ind. His work also has been published in a variety of newspapers including

The Wall Street Journal

,

The New York Times

and

International Herald Tribune

. Hall received a bachelor�s degree in journalism and political science from The Ohio State University and has taken graduate management science courses at Boston University.