By Joshua Franklin and Trevor Hunnicutt

NEW YORK, July 1 (Reuters) - KKR & Co transforms into a corporation on Sunday, a change that should help the U.S. private equity firm tap a new pool of investors for its stock.

What remains to be seen is if, given the new option, active fund managers will want to buy what KKR is selling. The firm's rivals will meanwhile be keeping an eye on investor demand to judge if they should follow suit.

The change by KKR, which made its name through leveraged buyouts in Corporate America in the 1980s, to so-called C-Corp from a publicly traded partnership (PTP) will mean a bigger tax bill. But it also opens the door to more investors, including some of the world's biggest mutual funds.

"How many of those people will show up on July 1? I have no idea," said KKR head of investor relations Craig Larson, adding that the decision was made for the long-term benefit of the firm.

HITTING THE PAVEMENT

KKR's management has held nearly 100 investor meetings since announcing the conversion in May. Speculation about new demand for the stock starting July 1 has helped boost the shares around 20 percent, far outpacing peers.

But fund managers say lingering complexity, the unpredictable nature of private equity performance fees and the fact that they are still founder-controlled could hold some investors back.

"We love it, but there is a lot of ambivalence in the investment community about these names," said Ariel Investments vice chairman Charles Bobrinskoy, a KKR and Blackstone Group shareholder.

That could frustrate KKR management and employees, who own a large chuck of shares that have largely been underperforming the broader market since the firm went public.

The new structure will make KKR eligible to be included in stock indexes, a change that can boost demand from passive investors that track those benchmarks.

KKR is also trying to make its business easier for potential new investors to understand, simplifying earnings disclosures and no longer focusing on complicated metrics like economic net income, a hypothetical number reflecting the mark-to-market valuation of portfolio gains or losses.

Gabelli & Co analyst Macrae Sykes said the change into a C-Corp solves some of the technical aspects of owning the stock but that "the nature of their business still comes with complexity."

Many mutual funds are either prohibited from investing in PTPs or opt not to because of the administrative hassle.

CONVERSION COMFORT

As public companies, private equity firms have been able to diversify and invest in areas such as real estate, infrastructure and credit to style themselves as alternative asset managers.