NEW YORK (CNN/Money) - Should Average Joe worry about what hedge funds are doing? Or just Millionaire Jane?

"We have potential huge bets being made and if they are wrong and we have a serious domino effect ... student loans could be affected by something happening in Russia," said Securities and Exchange Commissioner Roel Campos at a hedge fund symposium last month.

The fear, of course, is that the markets would have to face down another Long Term Capital Management situation -- that giant hedge fund that blew up in 1998 when Russia defaulted on its debt and a market meltdown was only narrowly averted ... lucky for Average Joe.

This summer brought a spooky reminder of that possibility when General Motors and Ford had their debt downgraded to junk status and numerous hedge funds were reported to have lost big. Investors fretted for nearly a week waiting for the fallout.

But it never came...a sign say some that the risks in hedge funds is overblown; it's only those investing in the hedge funds themselves (usually high net worth investors) that need to worry. And even then Millionaire Jane can rest a little easier.

"The chances of a large hedge fund blowing up are much slimmer (than in 1998)," said Phillippe Bonnefoy, investment adviser to Cedar Partners, the research affiliate of Comas Management. "One trade is not going to carry them out the door."

Bonnefoy and others point to a couple of key reasons.

For one thing, hedge funds aren't using as much leverage as they were 10 years ago.

Second, the hedge funds themselves are imposing tighter risk controls sparked by reduced risk tolerance by their investors. Bonnefoy said that institutional investors are less interested in the George Soros-style, 40 percent returns of the 1990s.

Not everyone is convinced there isn't a problem.

The hedge fund industry has grown dramatically, with total assets now at an estimated $1 trillion and some single funds accounting for large volumes of trading on some exchanges.

"Just because we didn't see an event (after GM and Ford) is small comfort," said Andrew Lo, the director of the MIT Laboratory for Financial Engineering and chief scientific officer at the hedge fund Alpha Simplex Group. "There are large exposures out there we haven't seen yet. I'd say the jury is still out on whether the industry can withstand the shocks that may come out over the next few months."

Lo adds that while leverage has declined after 1998, it has crept up lately as hedge funds seek to juice returns in a lackluster market.

Lo also worries about "phase locking." In Lo's analogy, when everyone moves to the same side of a boat at once, causing an imbalance, the whole group then moves to the right side at the same moment to correct the imbalance, which actually exacerbates it.

In particular, hedge funds have gained an unprecedented influence over fixed income markets. Factoring in leverage, hedge funds account for ownership of more than a third of all fixed-income products, according to recently published research from ratings agency Fitch.

The Fitch analysts worry about hedge funds that the tendency for certain types of hedge funds to pile onto similar trades -- if the trade goes bad, the pain will be far and wide.

"In the case of structured credit, a lot of the trading is built on certain model assumptions that haven't always been tested under every scenario," said Roger Merritt, managing director for credit policy at Fitch and one of the authors of the report. "What you saw in the spring with GM and Ford was an example of how models didn't anticipate that the markets could behave in a certain way."

But the tendency to pile on may be overstated, according to Kurt Schacht, the executive director of the CFA Centre for Financial Market Integrity, a branch of the CFA institute.

"People tend to want to talk about hedge funds as a homogenous group," Schacht said. "But diversification is fairly extensive. If the thought is that there is this one big group of hedge funds that is going in one direction or another -- we doubt whether that's going to happen."

Schacht acknowledged that in some niche strategies, there are opportunities for funds to take a hit if they are all lined up in the same direction, but he doubted that such a situation would lead to a global systemic event.

Virginia Parker, founder of fund-of-hedge funds firm Parker Global Strategies and the editor of Managing Hedge Fund Risk, said that while there were "hiccups" in the credit markets in April and May, with the unwinding of positions in some structured credit products and some investment banks holding similar investments, the effects were not long-lasting.

"Things seemed to have happened in an orderly fashion, which is encouraging," she said. "I think the risk committees at banks have much tighter controls, and you see a number of counterparties that don't want to enter into transactions where they aren't going to make money for the exposure they take. The risk appetite has really gone down."

Added Bonnefoy, "The chances we're going to see a massive flame out are minimal. The fact is, it's going to be a quiet period of grinding out returns, and the failures will very boring."