You also must qualify to even buy a hedge fund. They usually require 200k plus and a personal net worth over 2M.
So they may be dumb investors, but they must also be rich and able to afford the loss.
I personally think that they could do just as well with some high risk investments, but we live in a free market society. We should continue to let rich people make dumb investments. It sure makes a lot of little people richer and some hedge fund managers rich managing these accounts.
On the other hand, if hedge funds unravel, it is not just dumb money which would be lost, but the resulting financial disaster will seriously hurt lives of many little people.