WEST PALM BEACH, FL (www.hedgeco.net) – Growing number of hedge fund managers have continued to challenge private equity firms as competition in the buyout business stiffens. According to reports,the recent acquisition struggle for Toys ‘R’ Us also included Hedge fund manager Cerberus Capital Management LP. The group contested with another group of private equity firms which included KohlbergKravis Roberts & Co for Toys ‘R’ Us. As investment opportunities dwindle in the markets, hedge fund operators are capitalizing on emerging opportunities to seek alpha for the fund�s investors.Recently, a group of hedge fund managers are also targeting retailer Circuit City, and Mylan laboratories. Adam Sokoloff who is co-head of the financial sponsors group at investment bank Jefferies& Co. said, “Hedge funds with the ability to lock-up investors’ cash for several years and to become involved in strategic and long-term decisions will be successful.�

Some analysts believe hedge funds may be successful in the buyout business because of the relative lesser time it takes them to complete such transactions. Their ability to go in and out of the markets has enabled hedge fund managers to be quite efficient with activities that they participate in.

Eliot Raffkind, partner in the investment group at law firm Akin Gump Strauss Hauer & Field said, “There are already a significant number of hedge funds with a “side-pocket” capability – typically accounting for between 10% and 20% of the fund’s value – but we are seeing many more funds considering it as competition for good returns in a capital-rich environment heats up.�

Others believe that hedge funds also have some competitive advantages when it comes to buyout business. Their superior research and analytical skills will enable them to know very well the companies that they are aspiring to acquire. Part of the reason comes from hedge fund manager�s familiarity with such companies through trading their securities.

In the private equity arena hedge funds may also hold another advantage; many hedge fund managers hold significant portion of their assets in cash and may use those funds in any type of trade in which they see potentials for profit. The traditional equity buy-out firms, lack such flexibility, equity firms do have to overcome some restrictions that tend to cause some type of delays. Experts believe that more hedge fund managers may enter the buyout arena once such business continues to provide them with profits that have become elusive in today�s markets.

Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net

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