Illustration: ARThUR GIRON
By Lauren Silva Laughlin
October 10, 2013

Investors have always dreamed of getting access to big private equity and hedge funds, which have enriched institutional investors for decades. These days they finally can. Since August, investors with accounts managed by Fidelity have been able to access a Blackstone offering that functions like a hedge fund (but follows mutual fund rules). Kohlberg Kravis Roberts has a publicly traded closed-end fund that buys loans and high-yield debt. And $50,000 can now buy you a piece of a Carlyle private equity fund (though SEC rules on the latter still mandate that buyers have a minimum $1 million in assets).

Blackstone’s fund might become a model for the industry. Available only to customers with Fidelity managed accounts (which require a $50,000 minimum investment), it’s called the Blackstone Alternative Multi-Manager Fund. It emulates Blackstone’s flagship, a so-called fund of funds. In this case Blackstone is working with a dozen outside managers, including Cerberus, Credit Suisse, and Wellington. They buy commodities, currencies, debt, distressed debt, and equities. The fund can take a longer-term view or bet that a stock will fall. It also employs quantitative strategies, in which computer models suss out trading inefficiencies. It’s a far cry from a typical mutual fund, which buys a stock or bond hoping it will rise.

Through its managed accounts, Fidelity is offering access to several other funds with hedging strategies. The firm allows investors to choose a risk profile that includes up to 5% in “alternative” funds (investors aren’t permitted to pick a specific hedge fund). These alternatives aren’t aimed at absolute returns but rather at reducing volatility. “We found that when you put these funds in as part of a broader solution, we could dramatically improve downside [risk] but give up some of the upside,” says Jeff Mitchell, head of research for Fidelity’s Global Asset Allocation division.

Blackstone has delivered low volatility in the past. Its flagship, which has averaged 8% returns since 1996, fluctuated an average of 4.4% per year to one side or the other. The S&P 500 (which averaged 7% in the same period) oscillated 16%. Managing sharp swings helps conserve cash and makes a tumultuous market less nerve-racking.

There are two key differences between Blackstone’s new fund and a typical hedge fund. Because it’s governed by mutual fund laws, Blackstone must buy liquid investments. This narrows its choices and could make it veer from its historically successful strategy.

The fees are different too. Fidelity takes a levy of 0.63% to 1.48% (depending on the size of the account), while Blackstone and its partners divvy up another 1.95% (plus some other expenses). That’s pricey for a mutual fund but dirt cheap for a hedge fund: Blackstone is forgoing the 20% of investment gains that it charges hedge fund investors. How often does the little guy get something for less than the big guy?

Correction: An earlier version of this article incorrectly stated that Fidelity was offering a mutual fund with a minimum investment of $2,500.

This story is from the October 28, 2013 issue of Fortune.

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