Hedge Fund Envy Comes to Buyout Shops

"Like every company, we need to continue to evolve to meet the marketplace changes, competitive dynamics and changing landscapes of our business. Increasingly scale is a critical feature to us in the lending and investment universe that we participate in," said Chief Executive Saturnino S. Fanlo. "Our core customer base, private equity firms and the large financial institutions, has grown massively in scale, and their perspectives have dramatically changed in the last 18 months, and we feel that we need to evolve with our customers."

That's a departure for an industry that has for years stuck to its knitting. The private equity strategy, made famous by KKR's leveraged buyout of RJR Nabisco in the late 1980s, continues to work well, with new acquisitions and lucrative cash-outs making headlines every day.

Perhaps it is another headline-grabbing tactic that is sowing the shift. Recently, hedge funds have managed to open up a new front in the battle for corporate influence with their focus on corporate activism. The move has often given hedge funds a more active role at the companies they buy into. The trend is perhaps best illustrated by Carl Icahn's activist lobby against Time WarnerTWX.

While this type of activity is more likely to use stock ownership as its vehicle, distressed-debt trading might eventually lead to similar inroads.