In practice, most pension funds have only a small exposure to hedge funds. Counterparties are another important source of market discipline. The principal counterparties of most hedge funds are large commercial and investment banks, which provide the funds with credit and a range of other services.
The end-game may look like the free banking era, when competing private banks were printing their own banknotes, and it was hard to keep track of their value. In such a situation, at least, the reintroduction of legal tender in the form of digital cash might become a serious issue. Robust payment systems are a crucial backbone of modern economies.