KEY DIFFERENCES BETWEEN HEDGE FUNDS AND PRIVATE EQUITY FUNDS

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The last few years have brought an explosion in the number and size of hedge funds. Additionally, recent deals by private equity funds are much larger than in the past and include taking publicly traded

companies private. And private equity funds are now doing larger "club" deals. Both types of funds have more money under management than ever before. More cash is chasing deals, causing overlap where both types of funds vie over the same company.

Although these funds do not represent long-term threats to each other, secured lenders must recognize that private equity and hedge funds have markedly different characteristics, goals and behaviors. The differences are most starkly illustrated when a hedge fund invests in the debt of a private-equity portfolio company. Knowing these differences will assist secured lenders in evaluating alternatives when the different types of funds end up in the same deal. The most fundamental difference: private equity funds seek to buy all of the equity of companies; hedge funds are not constrained to controlling equity investments. Highlighted below are other major differences between the two types of funds.