American Venture Magazine – The phenomenon of the convergence of private equity firms and hedge funds has garnered a tremendous amount of attention. As this trend gained visibility, affected investment communities sought a broader perspective on how it developed, who is driving it, how widespread it has become, how it impacts market participants, what challenges it creates for larger and middle-market firms, and how this trend may evolve.
Grant Thornton and the Association for Corporate Growth (ACG) conducted a survey to address these issues. The survey revealed that the blurring line between private equity and hedge funds was driven primarily by hedge funds seeking higher returns, more capital to manage and the diversification of risk. At the same time, private equity firms are looking for ways to generate capital faster rather than waiting for portfolios to mature. This trend is affecting the M&A market as the influx of capital gained from convergence is resulting in increased competition amongst buyers and higher prices paid for businesses.
Additionally, the survey revealed that 83 percent of the private equity professionals pointed to hedge funds as the drivers of this trend. Hedge funds concur, with 52 percent saying that they are behind the convergence, and only three percent believe it is a private-equity driven phenomenon. Further, 39 percent of private equity respondents say the trend is having an effect on private equity investing, while only 23 percent of hedge funds say it is affecting their industry.
