Regulators reportedly probing alternative mutual funds

August 13, 2014, 2:40 PM UTC
contract armin harris
Kyle Bean for Fortune

The Securities and Exchange Commission is looking closely at alternative mutual funds, according to a report in The Wall Street Journal.

Alternative funds, which are mutual funds that function in some ways like a hedge fund, have been especially hot among small investors in the past few years. The Journal points out that while supporters of alternative funds say they provide protection against market risk and give smaller investors options previously only available to the wealthy, detractors say the education isn’t good enough and some investors may get into an alternative fund without really knowing what it is they are investing in.

Sources told the Journal that the SEC’s investigation appears to be a fact-finding venture, rather than a serious attempt at any sort of enforcement action. Firms under investigation include giants such as BlackRock (BLK) and AQR Capital Management LLC, and smaller fund firms.

Alternative funds saw inflows of $40.2 billion in 2013, a huge jump from $14.5 billion in 2012, the Journal said.

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