NEW YORK, June 12, 2006 –  “Hybrid hedge funds that are initiating positions in private equity investments face many challenges,” said Michael Tannenbaum, Founding Partner at Tannenbaum,Helpern, Syracuse & Hirschtritt LLP, speaking to a group of reporters in New York.
 
Besides managers, vendors, investors and regulators will also be impacted.
 
“One of the unintended consequences of hedge fund regulation means that the SEC auditors will now have to scrutinize the illiquid portions of some hedge funds’ investments,” said Tannenbaum who alsobriefed reporters on this issue. “It is ironic that the SEC will be doing this as they wanted to avoid getting involved in regulating the private equity arena in the first place – that’s the genesisof the 2 year lock up.”
 
Ricardo Davidovich, a partner in the firm, said “Private equity managers will find it easier to migrate to the hedge fund side than will hedge fund managers going over to the private equityside.”  The lack of liquidity may be a challenge to some hedge fund managers.
 
According to Messrs. Tannenbaum and Davidovich, convergence will especially prove challenging for administrators who now have to price both liquid and illiquid investments and maintain more complexrecords for funds with side pockets and the entry of more and more ERISA programs (who bring along Department of Labor regulations) will make the process even more complex.
 
Tannenbaum stated that while convergence of hedge funds and private equity poses challenges, there are benefits at hand.  One of the benefits is that these hybrid funds are essentially creatinga ‘one-stop-shop’ for investors looking to allocate across the alternative landscape.  The hybrid nature of these funds is also giving managers the opportunity to search beyond traditionalinvestments, which helps to capture alpha and generate absolute returns.  All in all, this is a positive development.
 
Tannenbaum Helpern Syracuse & Hirschtritt LLP is a leading law firm in the global financial services industry. Headquartered in New York, the firm has expertise in 12 practice groups. The Firm’sFinancial Services, Hedge Funds and Capital Markets practice group provides legal services and advises clients on securities law matters, futures, swaps, derivatives regulation and assists instructuring options and customized arrangements.  The Department structures on and offshore registered (40 Act) funds, hedge funds and fund-of-fund arrangements.  For more information,visit www.thshlaw.com