By Matthew Goldstein

It’s been an ugly summer for hedge fund king John Paulson with two of his biggest funds down more than 25 percent. But what makes that poor performance all the more painful is how widespread it is being felt by wealthy individual investors around the globe.

Paulson’s flagship Advantage funds would appear to be exclusive terrain with a $10 million investment requirement. But that hefty entrance fee is something of a veneer because many of Paulson’s investors have gained entrance to his kingdom by plunking down as little as $100,000. That’s because Paulson’s Advantage funds are some of the most widely sold hedge fund portfolios on distribution platforms maintained by Wall Street firms, European banks and small investment advisory firms around the globe.

Paulson has built a powerful internal marketing force to make sure there is a steady stream of money from wealthy individual investors trying to get into his funds. This was one of the more surprising things my colleagues Jennifer Ablan, Svea Herbst-Bayliss and I found when we began taking a close look at Paulson’s problems this year.

Now there’s nothing wrong with a successful manager taking maximum advantage of so-called hedge fund platforms to rake in money from rich individual investors. One could even say it’s smart because it enables a manager to take advantage of Wall Street brokers to help sell his funds and create pent-up demand at the velvet rope line.

But these distribution channels, which more and more managers are looking to join, are also a away for hedge funds to get around securities rules that theoretically limit the number of investors that can go into anyone portfolio. Typically, the investment with a hedge fund is listed in the name of a brokerage on behalf of all its customers who commit money to a manager. So if UBS, which has an agreement to sell Paulson’s Advantage funds, takes in money from 1,000 of its wealthy clients, that would be officially listed as a single Paulson investor.