Hedge funds could be back at $2 trillion by the end of next year, eclipsing their previous asset peak as investors return, Deutsche Bank’s prime brokerage chief predicted.

“We fully expect to see material inflows into 2010 and beyond,” Bary Bausano, global co-head of prime finance, told Bloomberg News.  Hedge fund assets, which topped out near $2 trillion last summer, had dropped to just $1.3 trillion but the end of the first quarter of this year, battered by poor performance and an avalanche of redemptions. But the industry is back up to about $1.5 trillion, according to Hedge Fund Research.

“The expected growth is reflective of continuing institutional demand for increased risk-adjusted returns in the face of low bond yields and disappointing passive equity performance,” Bausano added.