Nobody forces anyone to invest money in a hedge fund. The reason they're fees are so high is that they are historically really rough ridin' good at their job so the fees are worth it. The first year they suck at it, all the money is withrawn and taken elsewhere. Did you notice the article didn't mention how those same fund managers did last year or the year before??? Probably because they returned something like 45% when the t-bills yielded 4.5% (not actual numbers).
The article you've cited is a completely different animal than the crap you're complaining about. If you think that a State can retain someone talented enough to do what these monsters on Wall Street are doing then you're rough ridin' high. Those guys make as much money in one month as the state could afford to pay a guy in 2 years.
I think it's a bad idea for the state for several reasons: 1) who are they going to blame when their investments crater and the pension is underfunded again, 2) if they bitch about the "egregious" wages of the private sector, how can the attract a decent brain to run the deal without paying an "egregious" was, 3) as a public sector employee, what are you going to think when your boss fucks up your retirement, bosses shouldn't act in a fiduciary capacity with their employee (I realize in practice this isn't how it will work, but in reality it's how it will seem)