Now that the titans of Wall Street have moved toward extinction, some hedge funds are interested in taking over the lucrative deals those firms are no longer able to shepherd.

Only a year ago, several investment banks were competing to perform a variety of tasks in the capital markets, including underwriting, lending, public offerings, buyouts, brokering and advisory services. But now

Bear Stearns

and

Lehman Brothers

are gone, and

Merrill Lynch's

unexpectedly large losses have sent shocks though its new owner,

Bank of America

(BAC) - Get Report

.

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

(MS) - Get Report

are less able to engage in big deals and risky trades because of their transfer to bank-holding companies -- a move they were forced to make in order to receive funds from the government to stay afloat.

The financial industry at large has been holding tightly on to capital that once greased the wheels of the economy, freezing the credit markets and impeding consolidation across just about every industry.

The number of leveraged M&A deals dropped by half last year, according to Dealogic, while the value of such pacts dropped 54%. Of the top 10 leveraged deals announced from the start of 2008, only three of them came after the Lehman bankruptcy, which exacerbated the credit crisis.

Pfizer's

(PFE) - Get Report

announcement of a $68 billion move to acquire

Wyeth

(WYE)

last week may have seemed like the permafrost was finally thawing, but the deal only occurred because Pfizer has top-notch credit ratings and the banks involved secured stringent and lucrative terms for their $22.5 billion loan.

If nothing else, the Pfizer-Wyeth combination shows that corporate America is starved enough for capital to pay moderately high interest rates and put more skin in the game just to get deals done. As a result, some hedge funds are exploring whether they might step in to snatch the low-hanging fruit that the former giants are less able to pursue.

Igor Lotsvin, co-founder of the San Francisco-based hedge fund Soma Asset Management, says the dislocation of Wall Street's top names has provided "tons of opportunities" in the investment banking arena.

"That's certainly the role we're looking at ourselves," says Lotsvin. "We're getting reverse inquiries and raising capital, slowly, but steadily. Our mandate is pretty broad, and we've traditionally been a long-short equity investor, but now we're seeing other huge opportunities in lending or in the credit markets, now that the world of investment banking has been decimated."

Lotsvin says he's not alone. He predicts that in six months, "you'll probably see advisers in the business very different from the white-shoe firms you've always seen in the past."

Of course, that hasn't happened yet. Familiar names like Goldman, Merrill, Morgan Stanley, Bank of America,

Citigroup

(C) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

and foreign banks like

Barclays

(BCS) - Get Report

,

UBS

(UBS) - Get Report

,

RBS

(RBS) - Get Report

,

Credit Suisse

(CS) - Get Report

and

Deutsche Bank

(DB) - Get Report

are still the most prominent names for big buyouts and advisory services.

But it wouldn't be the first time that hedge fund industry changed course and rebranded itself by entering strange new territory.

Ezra Zask, who worked in hedge funds for two decades and is now a director at the consulting firm LECG, notes that the industry began blurring the lines between hedge funds and private equity years ago by acquiring large, longer-term ownership stakes in companies. Now, prominent players like

Fortress

(FIG)

,

Blackstone

(BX) - Get Report

,

Citadel

and

Cerberus

offer investments in both the hedge fund and private equity space, or a hybrid of both.

Perrie Weiner, international co-chair of DLA Piper's securities litigation practice, says some big hedge funds were "already were starting to overtake many of the investment banks" before the financial crisis heated up. Weiner, who has several hedge fund clients, attributes that to the "enormous resources" at their disposal, and hedge funds' ability to move more quickly to close deals than their older competitors.

Now, he says, "you're going to see hedge funds leading the way, because they're the first to dive into the market, and they have lots of cash sitting on the sidelines."

However, while hedge funds are not averse to infringing on the territory of other institutions, their ability to dominate the investment-banking space is not entirely a question of will. After an unexpectedly weak performance in 2008,

hedge funds

are buckling under the pressure of client withdrawals. They are also facing a crisis of confidence from a slew of Ponzi schemes that have been uncovered, namely the Bernard Madoff scandal.

Pierre Villeneuve, managing director of the hedge fund Mapleridge Capital, says his industry will have to "rebuild the trust that has been shattered" before entering new lines of business in this challenging environment.

"For hedge funds to move into Wall Street's turf will require a lot effort," he says in an e-mail message. He later adds that they also "do not have access to the credit markets -- no one has -- to facilitate the type of business that dominated Wall Street in recent years."

Another prominent barrier is the changing regulatory landscape, with President Barack Obama and other leaders promising to monitor hedge funds more closely. Details remain sparse, but it's unclear what the largely unregulated industry will and will not be able to do once a regulatory plan is unveiled.

Nadia Papagiannis, a hedge fund analyst at Morningstar, also points out that few funds have the scale and talent to support the type of business that a Goldman or Merrill could have in its heyday. Even massive firms like Renaissance or Citadel are "also really hurting," she says. Consolidation may weed out weaker players and create larger, stronger ones, but Papagiannis doesn't expect a massive change in the hedge fund business model.

"I don't really think they're going to be the next titans of Wall Street," says Papagiannis. "A lot of these big banks either seeded hedge funds or were investors in hedge funds. It's a symbiotic relationship. You can't have one without the other."

Still, the fall of the titans has created a dearth of investment banking services in what many still recall as a booming, profitable industry. Lee Giovannetti, CEO of Consulting Services Group, attended the hedge fund industry's GAIM conference in Miami recently, and asserts that "somebody is going to have to step in and take their place."

While Giovannetti calls hedge funds "a very likely candidate," he is careful to note "it's still very early to tell."