William Safire has a column in today's New York Times entitled "Watch the Hedgehogs." It begins with the line: "In a future remake of The Graduate, the phrase replacing "plastics" to be whispered in the ear of the title role is 'hedge funds.'"

Well, that's a lovely thought.

Anyway, I work for a hedge fund in New York, and although I had no desire to turn into an apologist for the industry, Safire's column was so misinformed that I originally felt obliged to correct him on a couple of points. However, this turned into a monster post that would, most likely, be of no interest to anyone but me, so I decided to skip it. If you really want to read it, shoot me an e-mail. Or start a petition in the comments section.

However, since I'm pretty sure that nobody from work reads this blog, I might as well say that most hedge funds are overpriced investments that probably won't beat the market over the long run. (I don't include my own company in this statement, of course.) In reality, although many investors hope that they will provide excess returns, hedge funds are useful mainly as a way of diversifying one's portfolio, and there's a whole world of other stuff out there that will do the job at a much cheaper price. In fact, I'd say that there's no need to invest in hedge funds unless you've diversified into the following asset classes and still hunger for more: investment-grade bonds, U.S. stocks, foreign stocks, real estate investment trusts, commodities, inflation-protected securities, high-yield bonds, gold, and timber, in that order. (Believe me, I'm looking forward to the day when I finally buy my own timber fund.) Then, maybe, you might want to think about hedge funds. But probably not.