Securities regulators are probing "fund-of-funds" firms that channel investors' money into hedge funds, looking at supervision of client assets and potential conflicts of interest, according to a person familiar with the matter.

The probe is part of a sweep of about a dozen firms by the U.S. Securities and Exchange Commission's Office of Compliance Inspections and Examinations, the source said, declining to be named because they were not authorized to speak to the media.

An SEC spokesman declined to comment.

The move is one of the SEC's broadest examinations yet of the fund-of-funds industry, which manages some $735 billion in assets, according to hedge fund data tracker InvestHedge.

Fund-of-funds firms typically collect fees of 1 to 2 percent and hand over investors' money to multiple hedge fund managers that they claim to carefully select. The industry has come under scrutiny in the past few years after several firms faced huge losses from investing with convicted Ponzi schemer Bernard Madoff.

The SEC inquiry, first reported by The Wall Street Journal on Friday, will investigate whether the firms are properly supervising their clients' money and working to avoid potential conflicts of interest.

The newspaper said the SEC's initial inquiry involved mid-sized fund-of-funds firms overseeing $100 million to $15 billion in assets, and that it could be expanded to include alternative investment advisers focused on private equity and other registered advisers catering to pension funds. The Journal cited people familiar with the matter.