Hedge Fund Report: Private Equity's Pressing

Private equity firms continue to stage landings on the hedge fund beachhead. Following the lead of Texas Pacific and more recently Kohlberg Kravis Roberts, the Blackstone Group announced the creation of a new hedge fund that will focus on long/short equity. It's the firm's second hedge foray; a distressed investing vehicle launched in December 2004 currently runs $600 million. Blackstone is already one of the largest funds-of-hedge-funds managers, with about $12 billion under management. Its single-manager effort is still relatively new.

Blackstone hired Manish Mittal, a managing director at $10 billion hedge fund Perry Capital, to lead the new venture. Prior to Perry, Mittal worked at two other major hedge funds: Kingdon Capital Management and SAC Capital Advisors. He started his career as a private equity analyst at Goldman Sachs(GS Quote).

Take Off

Boston-based Highfields Capital Management, an $8 billion activist hedge fund partly credited for uncovering fraud at Enron, hit a wall with the Toronto Stock Exchange last week. The fund manager, owner of 4% of Great Canadian Gaming Corp., sent a letter to both the company and to the Toronto Stock Exchange in which it raised questions about the gaming company's plan to sell a 10% stake at a deep discount to CEO Ross McLeod.

In the letter, Highfields said that it believed that the transaction was a violation of Toronto Stock Exchange rules regarding pricing and private placements. One argument was that the exchange prohibits such discounted private placements unless approved by shareholders. Highfields was also basing its analysis on New York Stock Exchange rules that require shareholder approval for the issuance of more than 1% of the shares to an insider. In the end, though, the Toronto exchange ruled the Great Canadian transaction kosher. Arguably, the finding is counter to the recently fashionable belief that Canadian markets are activist-friendly.