According to a new report from Morgan Stanley, entitled “Hedge funds: where next (II)?,” 2010 appears likely to be a pivotal and beneficial year for hedge funds due to a rise in demand for better risk adjusted returns, the migration of talent from investment banks and the trading off of a successful 2009.  The report addresses five issues: (1) the growth outlook for the hedge fund industry; (2) the hedge fund strategies that will prosper in the foreseeable market environment; (3) the viability of the hedge fund of funds model; (4) the reality of fee compression; and (5) the risk to hedge funds from regulatory change.  Most notably, the report suggests that hedge funds provided as much as 40 percent of the money raised this year by United States and European banks as they sought to offset losses and meet government capital requirements.  Of equal note, it also suggests that hedge fund assets may rise to $1.75 trillion by the end of 2010.  This article details the report’s most salient findings and its implications for the hedge fund industry.