The Securities and Exchange Commission is examining the near-collapse of two Bear Stearns hedge funds that made bad bets on the mortgage market.

The SEC inquiry is “informal” at this point and has not resulted in any subpoenas or formal document requests, according to agency reports citing an unnamed official.

Christopher Cox, the SEC Chairman, disclosed at a House hearing yesterday that the agency has started about a dozen investigations related to complex aggregations of debt known as collateralised debt obligations, in which hedge funds have increasingly invested.

The situation took on urgency last week with the near-collapse of two hedge funds managed by Wall Street investment firm Bear Stearns.

Bear Stearns said late yesterday it would provide about $1.6 billion (£800 million) in secured financing to its Bear Stearns High-Grade Structured Credit Fund after the fund sold some assets to partially mollify lenders. But it is not providing any financing to the second fund.

The bail-out by Bear Stearns is one of the largest such moves since Wall Street’s investment banks bailed out Long-Term Capital Management in 1998 to avoid a collapse of the broader financial markets.

Barclays investment bank arm Barclays Capital is said to be one of the banks with the biggest exposure to the two funds, although last week it issued a statement saying that its exposure would be immaterial in terms of its overall profits.

The fear is that the defaults on mortgages to risky borrowers, already at an all-time high, could spread throughout the global banking system. Big investment banks have repackaged many of the loans as securities that can be traded and many hedge funds, such as the two being managed by Bear Stearns, have further upped the stakes by borrowing money to invest in them.

Meanwhile, a report by Merrill Lynch and Cap Gemini revealed today that the world’s richest individuals halved their allocation to alternative investments in 2006, largely in favour of real estate and equity investments.

The report, which focuses on individuals with between $1 million and $30 million to invest, revealed that average allocation to alternative classes, including hedge funds and private equity, fell to 10 per cent in 2006, from 20 per cent in 2005.

Low volatility in the equity markets, new opportunities in real estate investment trusts (Reit) and performance in the commercial real estate market were identified as the cause for the shift.

The change, however, does not reflect doubts about alternatives, according to Nick Tucker, head of UK and Ireland Global Private Client group at Merrill Lynch.

“It was not scepticism, it is rather due to expectation of greater returns in the equity and real estate market,” Tucker said.

He added he expected interest in hedge funds and private equity to revive as investors remember that those asset classes were “key” in the bear market at the turn of the century.

The World Wealth Report has also highlighted increasing interest in socially responsible investments, largely thanks to inflows from new high-net-worth individuals.

SRI and ethical investments however are not seen just as an opportunity to invest responsibly, but also as potential for higher returns, the report said.

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