Assets in the hedge fund industry swelled to $1 trillion in the first quarter, although demand for these high-return, loosely regulated investment vehicles remained at 2004 levels, according to a report released by Hedge Fund Research.

The industry added $27.35 billion in the first quarter, compared with $27 billion in the previous quarter and $22.2 billion in the year-ago quarter.

Pension funds, charity institutions, university endowments, foundations, and high-net-worth individuals together pooled billions of dollars in the last three months hoping to continue the industry's stellar growth.

"The recent milestone of $1 trillion in industry assets is further evidence that hedge funds continue to appeal to those investors seeking diversified returns without correlation to equity and bond markets," said Joshua Rosenberg, president, HFR.

The hedge fund industry, which had only $150 billion in assets a decade ago, is still a far cry from the $8 trillion mutual fund industry. Its steady climb, though, can be attributed to the continual fall in the dollar and a surge in oil prices.

An average hedge fund generated a 0.32% return, compared with the decline of the blue chip Dow Jones and Standard & Poor's 500 indexes of 2.6% and 2.15%, respectively in the last quarter, according to Hennessee Hedge Fund Index.

Industry winners included funds specializing in companies with prospects of merger deals and bankruptcies, which led the way by adding $5.9 billion.

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