HEDGE FUNDS IN PRIVATE EQUITY SPACE

Stephanie R. Breslow & Christopher Hilditch

The Trend

Hedge funds increasingly active in private

equity arena

Activist and Sectoral funds

Examples: Icahn - Time Warner

Polygon – British Energy

Laxey - Wyevale

The Opportunity

Size of hedge fund industry

Broad mandates

The search for “alpha”

Hedge Fund Advantages

Access to capital

No drawdown time/certainty of capital

Leverage

Fund life cycle

Less information sharing

Structural Considerations

Basic structure remains the same

Managing liquidity: lock-ups; gates and fees

Managing liquidity: side pockets

Issues

Valuation – the need for fair value

Listing

Investor issues

Fee calculation

Lack of tax advantages

© 2005 Schulte Roth & Zabel International LLP