Wall Street is given to identity crises, as evidenced by its latest trend: hedge fund launches by private equity groups. After years of success doing leveraged buyouts, two of America's most prominent private equity teams recently announced plans to diversify into the rough-and-tumble world of hedge fund trading. Providence Equity emerged this week as the latest to make the jump, launching its own trading team that will take on the hedge fund strategy of distressed-debt trading. The Rhode Island-based private equity group, which primarily focuses on media investments, will launch the new vehicle later this year, according to people close to the company. The fund will be named Newport Partners, and it will focus on distressed-debt trading, particularly among media companies. The company plans to raise up to $750 million and has hired a team from AIG to head the group. A Providence Equity spokesman declined to comment on the plans. The move comes as hedge fund managers and private equity funds fight a pitched battle for institutional assets. Providence's foray also counters an assault by hedge funds on private equity that has been going on for several years, the best-known example being Ed Lampert's work at Kmart and Sears ( SHLD). Lampert's original stake in Kmart was bought while the company was in bankruptcy and consisted of bonds. Indeed, so-called distressed debt is an area where both private equity and hedge fund players believe they have special expertise, so it's no coincidence that that is where Providence will begin. For a buyout shop, the sector provides a chance to exploit a talent for takeover negotiations and asset valuation. "Take any of the go-go activity in the 1980s where people were buying investments and quickly flipping them," says Douglas Baird, professor of law at the University of Chicago. "Transfer that to the bankruptcy forum, and that's distressed debt."