Eager for more fee revenue and aware that the average investor's financial IQ is rising, hedge fund complexes are trying to offer their products to the masses.

Banking companies' private banking arms have been selling both hedge funds and funds of funds to less affluent customers for a while: Wachovia Corp. and First Union Securities, among others, are offering them to clients with net worth below the usual hedge fund limit of $5 million.

Another reason many institutions are considering marketing hedge funds to more clients is their tendency to outperform other indexes in down markets. As of mid-July hedge funds had gained 2.1% since the start of the year, compared with a loss of 2.6% for the Dow Jones industrial average, according to the CSFB/Tremont Hedge Fund Index.

Joseph Nicholas, chairman and chief executive officer of the Chicago hedge fund research firm HFR Asset Management, said heightened demand has companies pushing themselves to make hedge fund-type products available to middle-of-the-road investors.

But no one has hit on a formula that could make it work in a mass market.

Ssaris Advisors LLC, a Stamford, Conn., hedge fund manager owned by State Street Global Advisors, is exploring the possibility of developing a retail fund that would give the mass market access to some of the benefits of hedge fund investing.

Mark Rosenberg, chairman and chief investment officer of Ssaris, said one of the easiest ways to offer a hedge fund to retail investors would be to develop a mutual fund that invests in hedge funds. Such a fund would have some similarities to a hedge fund of funds but would not be restricted to qualified investors, he said.

But such a product would have to adhere to the Securities and Exchange Commission's mutual fund regulations, to which hedge funds themselves are not subject, and that might make the retail fund less attractive for an institution to offer and to manage.

For example, SEC regulations would bar such a fund from charging any incentive fees, in which the fund manager receives a percentage of the fund's returns. In a good year these fees are a huge source of income for hedge fund managers, Mr. Rosenberg said.

Another potential problem he cited in developing such a fund is that open-end mutual funds are bought and sold daily, while most hedge funds are bought and sold quarterly. That could put severe liquidity pressure on the retail product if many investors sell out of it in a short period of time, he said.

But hedge fund managers and consultants say there are ways to deal with the liquidity issue.

Meredith Jones, vice president and director of research at Van Hedge Fund Advisors International in Nashville, said that hedge funds, unlike mutual funds, can have lines of credit, which helps them honor redemptions without having to sell assets.

Mr. Nicholas said the liquidity problems could be eliminated by using a closed-end mutual fund, which is traded between investors on the open market rather than being sold by the fund company at net asset value, as the vehicle for investing in hedge funds.

Another snag for institutions marketing hedge fund-style products to the masses is that mutual funds are required to disclose their holdings at least twice a year, whereas very few hedge funds disclose their holdings in much detail. Mr. Rosenberg said it is unclear how that particular matter would be resolved.

Robert Rosenblum, a partner at the Washington office of the law firm Kirkpatrick & Lockhart, said that as long as regulatory guidelines are followed, regulators are unlikely to frown on banks' and brokers' mass-marketing efforts.

Giving retail investors access to hedge funds or hedge fund-type strategies, through either open- or closed-end retail mutual funds, is entirely legal, Mr. Rosenblum said. Unless there are allegations of fraud or deceptive advertising against a hedge fund, regulators would have little reason to intervene, he said.

But even if the costs of developing and marketing these products to the masses are viable, they may turn out to be more trouble than they're worth.

Speaking last week in New York at a conference sponsored by the Managed Funds Association, a Washington-based trade group for the hedge fund industry, Anthony Ciccarone, vice president of alternative strategies advisor research at Citigroup Inc.'s Salomon Smith Barney, said that financial consultants are trying to sell hedge-type funds to their affluent clients, but they generally buy other product because the hedge funds' investing strategies are too complicated for them to understand.

Geoffrey Bobroff, a mutual fund consultant in Providence, R.I., said the potential downside for banks of mass marketing hedge funds may outweigh the upside.

The compliance headaches alone reduce the potential benefits, but the bigger problem is that traditional bank customers are less sophisticated and more conservative than other investors, Mr. Bobroff said. Trying to market sophisticated investment products to them, even if the products fit within regulatory guidelines, could lead to trouble if they lose money, he said.

"In my humble opinion, banks should stay where they are - on more familiar turf," Mr. Bobroff said.

Still, said a hedge fund strategist who asked not to be named, Wall Street is always on the lookout for more assets and tempted by the high fees the funds generate for their managers, and hence may persist in coming up with ways to push them in the wider market.

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