Hedge fund-LBO alliances deepen

By Michael Flaherty

NEW YORK (Reuters) - The growth of hedge funds and private equity firms from small shops into major institutions has broadened their reach across the globe and deepened their old arms-length relationship in the process.

Once viewed as alpha animals trampling distinctly different turf on Wall Street, they now stalk targets together, and the line between them have gotten blurrier.

These days, private equity firms invite hedge funds into certain deals and invest alongside them on others. So-called buyout firms have launched hedge funds, while hedge funds have ramped up buyout investing.

Some bankers say it won't be long before mergers and acquisitions heat up among the investment funds themselves.

The two sectors are fueling each other's growth, with buyout funds launching huge takeovers, backed by oceans of debt scooped up by hedge funds.

"The hedge fund guys were viewed in the pejorative sense and not as the best partners. That's changed," said Larry Wieseneck, head of global finance at Lehman Brothers. (LEH.N: Quote, Profile, Research, Stock Buzz) "They've (private equity) realized that hedge funds have become a more permanent and positive part of the marketplace."

Executives from some of the world's largest funds will discuss this convergence, their strategies and market views at the Reuters Hedge Fund and Private Equity Summit from April 10 through April 12 in New York, London and Singapore.

Private equity firms buy controlling stakes in companies, often borrowing two-thirds of the money for the purchases, restructure them, then sell them two to four years later.  Continued...