The city comptroller, William Thompson Jr., is in the final stages of studying whether the city’s five pension funds should start investing in hedge funds.

The comptroller raised the possibility of the change in investment policy during a speech at an economic forum convened by the Reverend Jesse Jackson earlier this week. He later confirmed to The New York Sun that it was something his office is considering.

Advocates say hedge funds could help the city maximize investment returns, and that many other large institutional investors, including the State of New York and many colleges and universities, already invest in the funds. Critics say the funds are risky and that investing in them could expose the comptroller to accusations of “pay to play,” accepting campaign contributions from money managers who earn fees for managing public funds.

Mr. Thompson is expected to run for mayor in 2009, and hedge fund managers and their lawyers could prove to be a rich source of campaign funds.

The assistant comptroller for pensions, Joseph Haslip, said the office, which manages the city’s five funds, valued at about $95 billion, is “in the final leg of research” and plans to bring the hedge fund issue to its 40 trustees “within this year.”

“What we’ve been seeing is a projected decrease in the traditional markets we invest in,” Mr. Haslip said yesterday during a telephone interview. “What that has caused us to do is to become creative in trying to look at alternative investment areas.”

“We think it is something we might want to advise our board to look at and invest in,” he said.

Mr. Haslip couched his remarks by saying the office is studying ways to reduce the risk of hedge fund investments and ensure transparency — two issues that some of the trustees have already expressed concern about. He also noted that funds’ trustees must approve the investments and that Mr. Thompson would not act without “consensus” from them. “We are going slow,” he said. “We are probably sticking our toe in the water because we want to learn as we grow.”

The push to invest public pension funds in so-called alternative investments like real estate, private equities, and derivatives is not exclusive to New York. Those who support it say it’s a smart strategy for maximizing investment returns in a competitive market.

At a re-election fundraiser in June, Mr. Thompson accepted about $25,000 in campaign contributions from 24 employees of the Manhattan law firm Schulte Roth & Zabel LLP, which, on its Web site, states that it represent half of the 100 largest hedge funds. Mr. Thompson’s fundraising consultant, Suri Kasirer, said there is a “Chinese Wall,” between the campaign and government offices.

“The work done on the fundraising side is not connected to what goes on in his office,” she said. She also noted that Mr. Thompson has made increasing alternative investments a big part of his platform for some time.

Indeed, the city already has about 9% of its five pension funds in real estate and private equity. And Mr. Thompson has used the pension’s fund clout to influence the companies the city invests in as well.

Just yesterday his office announced that he filed shareholder resolutions urging five companies — including Bed, Bath, and Beyond and Urban Outfitters — to make sure their overseas suppliers abide by “basic human rights standards.”

In June 2005, the state increased to 25% from 15% the portion of public pension funds that can legally be invested in alternative investments, including hedge funds.

A budget analyst at the Manhattan Institute, E.J. McMahon, said public pension funds should aim for low risk.

“What pension funds need to do is to reduce their risk exposure because the risk is basically being borne 100% by the taxpayers,” he said. If the pension funds have shortfalls, taxpayers are bound to step in and fill them from general tax funds.

When asked in May about boosting the city pension funds’ performance, Mayor Bloomberg said: “There are plenty of hedge funds and LBO firms that give returns of 20%, but their returns are very variable and they have risk of actually losing significant amounts of money.”

“I personally would argue that we should be relatively conservative in terms of the kinds of investments we make because of the nature of whose money it is and what our obligations are,” Mr. Bloomberg added.

An adjunct professor at New York University and Pace University, John Tepper Marlin, who also served as the chief economist in the city comptroller’s office until 2006, said there are arguments to be made for diversifying an investment portfolio.

He said, however, that it depends on who is doing the investing. He cited the success as the Harvard University endowment and a 1994 debacle involving the pension fund in Orange County, Calif., which sunk the municipality into bankruptcy.

“The question is do we have the kind of people Harvard had when they were successful or do we have the kind of people that Orange County had when they were a failure?” Mr. Tepper Marlin said. The chief economist and deputy director of the Fiscal Policy Institute, James Parrott, said his faith is in Mr. Thompson.

“If Thompson can convince this hard-nosed group of trustees that these are sound investments and that’s it’s the right risk-return tradeoff, there is probably no problem,” he said.