Yesterday, MoneyNews.com posted an item titled, "Hedge Funds Still Rocking — on Foreign Cash."

In that article, we highlighted the inflow of cash to hedge funds at Goldman Sachs and Morgan Stanley.

We also pointed to the flow of foreign money into private equity firms Carlyle Group ($1.35 billon from Abu Dhabi) and Blackstone Group ($3 billion from China) and banks such as Barclays (a 3.1 percent ownership stake by China).

The article also reported that Credit Suisse data showed continued flows of money into alternative investments like hedge funds at a speed that will far exceed the growth rate traditional asset management.

Hedge Fund Research of Chicago research reported that an astounding $144.5 billion flowed into hedge funds in the first eight months of this year.

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So what is the great attraction for foreign investors to U.S. private-equity investments? After all, there are relatively higher growth rates abroad, the U.S. economy is looking decidedly weak, and our stock market appears shaky.

Well, I believe there are five reasons, most good, but one that is decidedly risky for America over the long-term.

First and foremost, America looks cheap!

The hundreds of billions of dollars earned from our massive trade deficits by foreign governments, corporations, and even individuals abroad are looking for a home.

At current low dollar levels and considering the risk of a wave of competitive currency devaluations by other countries, many investors may feel it is too late to speculate against the greenback. If so, why not use the surplus dollars to buy American assets at historic lows?

Second, foreign investors must be wondering why they should invest in U.S. Treasuries when a weak dollar may add to existing inflationary pressures and erode the return on fixed-income securities.

Third, prestigious American institutional investors, such as Harvard (see the December 2006 issue of the Financial Intelligence Report) and Yale, have achieved stellar returns by blending "alternative" investments with their more conventional asset classes. Why not follow suit?

Fourth, as the name suggests, private equity is "private" — very private, when compared with investments in publicly traded companies, which are subjected to a far higher standard of public disclosure, reporting, and government oversight.

Many major international money managers feel that "privacy" is a most important aspect of investment.

One big advantage of this relatively small amount of foreign-sourced private equity is that it is likely to be far less "hot" than investments in Treasuries, which can be liquidated and taken out of dollars in a matter of hours.

Finally, there is the question of penetration. This is the one issue of foreign-funded hedge fund investment that gives me cause for concern.

A major investor, committing billions of dollars to U.S. Treasuries or public stocks, can be assured of a fond welcome but little chance of getting a privileged insight into the future intentions of either the U.S. government or of a U.S. corporation. In both cases, such information would have to be in the public domain. But private companies are different.

Investors in private companies are in a position to look far into the affairs of the companies in which they invest without any public oversight or knowledge.

The prying eyes of foreigners can see into corporate research in areas such as advanced technology, including nanotechnology, bio-tech, even defense.

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This penetration can also affect the crucial areas of creativity and brain power. In the future, this could make us more vulnerable to the tempting away of key individuals to work in the vital industries of our strategic competitors.

In a world of massive patent piracy, increased risk of pandemics, and of a nuclear confrontation, I believe the question of foreign penetration of U.S. trade, bio-tech, and defense secrets represents a relatively new type of national corporate risk.

This is particularly true now that much research — once almost the exclusive preserve of our secretive government research agencies — has been outsourced to the private sector.

Of course, we have no one to blame but ourselves.

We have all either voted for or failed to vote against our governments. Indeed, the majority that has failed to vote at all is probably most to blame.

Our past governments, from both parties, have preferred to devalue the hard-earned dollars in our pockets in order to keep alive the hedonistic notion that "spend, spend, spend" is OK — an idea that attracts votes.

I feel it is high time that we Americans were told the true implications of this approach and that we began to realize the great costs of our dollar's devaluation.

I welcome the free flow of capital and trade. But massive foreign investment in U.S. private equity is largely a one-way-street and could well add an important and subtly different dimension to both industrial and military espionage.

Editor's note:
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Commodities Are Still in a Bull Market. Get Our Top 6 Recos for the Coming Year.