Washington, D.C. ? Increased vigilance, not new government rules, is the best way to handle risks in the trillion-dollar hedge fund industry, the Bush administration and regulators said Thursday.

Officials put forward guidelines they said should be followed by fund investors and institutions such as banks and brokerage houses that do business with the funds.

Business groups supported the hands-off approach. Critics said the growing size of hedge funds – they top $1 trillion in the United States – and some spectacular failures such as last fall’s collapse of Amaranth Advisors showed the need for greater controls.

Hedge funds can invest in anything from commodities to real estate. By comparison, mutual funds generally hold stocks and bonds. Some hedge funds even buy entire companies; others buy and sell stocks like day traders, but with billions of dollars at stake.

The recommendations came from the President’s Working Group, formed after the 1987 stock market crash.