According to a recent study by Van Hedge Fund Advisors International, hedge fund assets will grow to $6 trillion by the year 2015.

Institutional allocations to hedge funds are increasing rapidly, with about 60% of U.S. endowments and foundations now having investments in hedge funds.

The study reveals that the trend began in the bear market of 2000-2002, and this caused the decrease of institutional assets and their subsequent search for safe investments, on the one hand, and higher yield, on the other.

One example of the increase in investments in hedge funds is when the California Public Employees Retirement System doubled its allocation to hedge funds back in November 2004. "This expansion will provide greater diversity for our global equity portfolio and help us deliver long-term returns," said Sean Harrigan, president of the CalPERS Board of Administration.

There are quite a few reasons that hedge funds have become so attractive through out the years, according to Van Hedge Fund, including their ability to leverage, improved transparency and liquidity.

What will drive hedge funds' future growth, Van Hedge said, will be improved performance, more managers opening hedge funds to meet increased demand, and greater portfolio diversification, with hedge fund managers now investing in energy, private equity, real estate, middle market lending and asset-backed finance.

In recent years, hedge fund performance has been a big driver attracting investors. During the bear market of April 2000 through September 2002, hedge funds safeguarded investors' capital with a 2.1% return, while the S&P 500 lost 43.8%.

The Van research maintains the fact that hedge funds use leverage conservatively, meaning, there is significantly more equity than debt, which is one reason hedge funds have not been considered as highly leveraged as they have in the past, and more investors are gravitating to them.

The fact that hedge fund regulation is scarce also attracts investors. However, managers are required to register if they have more than 14 investors within the United States.

"Ask the long time sophisticated hedge fund investors, such as Harvard, Yale, the University of Virginia, large family offices and Swiss banks whether they agree that hedge funds produce better performance," said George Van, chairman of the Van Companies. "Ask also the many institutions that are now investors in hedge funds because their long-only investments plummeted up 40% in he recent bear markets while hedge fund investments preserved capital.

"The hedge fund industry has grown steadily for 17 years," Van continued. "While it will take at least another year for it to fully digest recent massive capital flows, growth will then again accelerate."

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