Financial crisis to slow convergence of hedge funds and private equity, but not for long, says academic

Feb 20th, 2009 | Filed under: Academic Research, Guest Posts, Private Equity, Today's Post | By:
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A couple of months ago, the U.S. Congress summonsed some of the world’s hedge fund titans to Capitol Hill.  Sensing that these managers – all of whom made over US$1 billion in 2007 – might be biased in favor of their industry, Congress also asked several noted academics to brief them on various aspects of the hedge fund business beforehand.  We interviewed one of the academics called to Hill that day, Houman Shadab of George Mason University, immediately after his testimony (see post).

Shadab is a senior research fellow in the Regulatory Studies Program at the Mercatus Center at George Mason  His work focuses primarily on financial regulation, in particular such areas as hedge funds, corporate governance, and derivatives.  He regularly publishes in journals such as the Berkeley Business Law Journal and the New York University Journal of Legislation and Public Policy and is a frequent commentator in the media.

We are pleased to invite Houman Shadab to this particular media outlet with this exclusive look at the convergence of private equity and hedge funds (a topic he covers in greater detail in this recent paper) .

Coming Together After The Crisis: The global convergence of private equity and hedge funds

Special to by: Houman Shadab, George Mason University

Two of the most significant types of alternative investment funds worldwide are hedge funds and private equity funds. For years, these two alternative investment strategies have been converging.  Although the financial crisis may slow this convergence, the trend will ultimately continue and strengthen – albeit with some important variations across countries.

In part because private equity funds and hedge funds both seek returns that are uncorrelated with overall markets, there is a natural synergy between the funds that has already helped fuel their convergence. Indeed, institutional investors often view their allocations to each type of fund as relatively interchangeable components of their overall allocation to alternative investments. More…

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