Because of the fact that corporate and public pension plans have begun to place their money into hedge funds, these loosely regulated investment pools have become a little less risky, a Treasury Department official said, Reuters reports.

Because of their institutional risk aversion and inactivity, they require full substantiation of an investment space before getting involved, the official noted.

"I think it is safe to say that as pensions continue to invest in hedge funds, the industry will further adjust and further impose upon itself an institutional risk management regime which should - at some level - mitigate risk," said Assistant Treasury Secretary Emil Henry.

With the institutionalization of the hedge fund industry, comes a greater call for transparency, and therefore more scrutiny. The Treasury will continue monitoring for potential risk associated with hedge funds and will focus on credit derivatives, Henry said.

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