According to a recent Wall Street Journal “Deal Journal” piece, the Chinese private equity firm SAIF Partners is considering an expansion into the hedge fund business. Since the firm has been traditionally focused on growth capital type deals in the private equity space, many question whether the jump into the hedge fund space is a logical progression for the firm.
The firm does have fairly broad industry experience, with current investments in diverse industries such as high tech, manufacturing, mobile technology and agriculture. This kind of broad experience in necessary for both companies and individuals in the hedge fund sector, as transactions occur at a much faster pace than in private equity. Being able to adapt to the current economic environment and seize upon opportunities in a variety of industries is critical to success.
Substantial Risks Exist for Private Equity Firms Moving into the Hedge Fund Space
Branching into the hedge fund space is not without its risks to private equity firms. One limited partner based in China told the Wall Street Journal that a foray into hedge funds could put future private equity fundraising efforts at risk. Many potential private equity investors could be scared off by the higher perceived risks involved in hedge fund investing.
SAIF in particular would be looking to set up a segregated team to manage its hedge fund interests and likely would have legal ring fencing to protect its private equity investors. That said, these measures may not be sufficient to convince what can be risk adverse private equity investors that the firm has not substantially increased its risk.
Can Hedge Funds Leverage Private Equity Strengths?
The reality is that there are a lot of similarities between hedge funds and private equity. While private equity firms may be focused more on longer term strategies and may become more involved in their investments than hedge funds, ultimately private equity and some hedge funds invest in similar asset classes. There is certainly the potential for the transfer of skills and experience from private equity to a hedge fund operation, with just a shift in focus.
Industry Similarities May Prove Beneficial for Job Seekers
These developments may be of significant interest to job seekers in both the private equity and hedge fund industries. In the current economic climate, there are certainly more opportunities in the private equity space. Those with hedge fund experience should not be afraid to consider a jump in order to advance their careers or even find a new opportunity following a lay off.
In some cases, the jump may be into a private equity firm as a leader in a new hedge fund line. The rapid pace of change in the economy today is driving firms such as SAIF to consider strategies that can be more quickly deployed than conventional private equity deals. As private equity firms seek out the experience for skills in hedge fund type strategy and execution, demand will grow for experienced professionals in both sectors.