Responding to competitive pressure, several leading banks are offering access to sophisticated hedge funds-which can take short as well as long positions in securities-to their well-heeled customers.

For fear of risk, banks used to keep clear of hedge funds and other so- called alternative investments, which include venture capital funds, private equity funds, and managed futures funds.

But now big banks are giving private clients a way to buy hedge funds- usually through funds of funds, which invest with several fund managers at once.

Chase Manhattan Corp. is emerging as a leader in the area. Its private bank manages more than $1 billion in commodity and hedge funds that use more than 40 outside investment managers.

Other banks that have created access to hedge funds include Bankers Trust New York Corp., Bessemer Group Inc., and Citicorp. And National City Corp., Cleveland, is acquiring Sterling Capital, a local family office boutique that invests in hedge funds.

The demand for such investments is growing fast. In just eight months, for example, the asset management arm of Donaldson, Lufkin & Jenrette raised nearly $1.1 billion for its new Ocelot Fund, run by famed hedge-fund manager Julian Robertson.

"I don't know a bank that isn't getting involved" in hedge funds, said Virginia Reynolds Parker, president of Parker Global Strategies in Stamford, Conn., which designs and monitors hedged products. "Major banks or regional banks are either involved or getting involved."

Banks have invested in private equity and venture capital funds for a while, Ms. Parker noted, but "directing them into hedge funds has been a newer phenomenon."

To create proprietary hedge fund products, banks are either building teams internally to select and screen the managers, or hiring outside help.

"Look at what it takes to pick out a mutual fund. That is itself difficult," Ms. Parker said. "Most private investors are more comfortable going to a bank or some other type of group that has dedicated resources and has done due diligence."

Though hedge funds are known for their riskiness, the bankers said they are providing a level of comfort that clients could not get when investing on their own.

"Should there be a problem with a particular manager is another reason why diversification, monitoring, and administrating is essential," said Donald J. Herrema, chief operating officer of Bessemer Trust Co.

Screening is not an overnight process. Hundreds of hedge fund managers offer various kinds of investment strategies, such as "global macro," "convertible bond arbitrage," "market neutral," "short-seller," "distressed securities," and "opportunistic," to name a few.

"It certainly has taken us some time to develop the kind of network to know what your clients are looking for, how to access the managers, and judge and monitor the risks," said Ronald Bates, president of Sterling Capital.

Observers said stagnant growth in their traditional investment business is forcing banks to work with alternative managers.

"Over time they realized that the growth of the asset base was happening faster at other firms," said Clark B. Winter Jr., a former banker whose New York firm, Winter Capital International, selects money managers, both traditional and alternative, for individuals and institutions, including several banks.

Mr. Winter said that bankers used to distrust investments managed elsewhere, but that demand from clients has driven them to find alternative investment managers at boutique firms, most of whom would not want to work in large organizations.

"There is a very obvious migration of talent, and investors are figuring this out," Mr. Winter said. "They are also realizing they can not expect indefinitely to get great return on U.S. stocks." Alternative investments offer the possibility of such returns, he said, so bankers "are saying, 'We want some of this.'"

Some private clients who want hedge funds cannot pony up the $1 million or even $5 million that many limited partnerships require.

Banks setting up funds of funds are letting these investors enter with less than $1 million.

"The very wealthy ... know how to access that world," said Mary Lehman MacLachlin, president of the U.S. private client group of Global Asset Management in New York. "The regular wealthy ... don't have a clue. It's very natural for them to go to their existing provider and ask."

Global Asset Management, one of the first firms to offer alternative funds of funds, is seeing more interest from banks, she said.

They used to steer clients away from hedge funds, Ms. MacLachlin said. "That was stupid," she said. "The clients are going to get there anyway," so they might as well do it with banks' advice.

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