Every day, the boundaries blur between private equity and hedge funds. Hedge funds are imposing more illiquid terms on investors and seeking returns in the nonpublic universe. And traditional private equity behemoths like Kohlberg Kravis Roberts & Co. and Blackstone are rolling up hedge funds. D.E. Shaw is in the process of dedicating a small, segregated portion of its multi-strategy hedge fund to private equity or illiquid investments, according to a person familiar with the matter. The firm, to be fair, is not new to private equity investing. Its partners have been engaged in a variety of private deals for a decade. They injected capital in Juno Online Services prior to its becoming public in 1999, for instance. But now the plan is to allocate a portion of hedge fund capital to private equity investments, which is slightly different. A spokesman at D.E. Shaw declined to comment. Imposing longer lock-up terms to investors in order to invest in illiquid assets reflects the same trend. But only the elite hedge funds can do that. A recent example is the newly created hedge fund by Nelson Peltz, which has a three-year lock-up, according to a Wall Street Journal report. When hedge funds want to lock up money, better to do it at the launch. If changes in the management agreement are adopted later on, investors sometimes react with unease. This is what happened with Ritchie Capital Management, a hedge fund that created an illiquid side pocket and more stringent withdrawal provisions last year, drawing the ire of some of its investors. Bank Leu, a Swiss-based fund of funds, ended up pulling a portion of its money out of Ritchie in January. "You put pockets of private equity and pockets of hedge funds commingled. To me, it's a problem," says a hedge fund investor.