Hedge funds are dramatically changing the landscape for private equity sponsors who, until recently, were the only financial players looking to take public companies private.

Some of that change is positive from a sponsor perspective and some of it is negative. The key benefit is that hedge funds create liquidity for existing shareholders and therefore generally make it easier to complete a public to private (P2P) transaction.

There was a time when institutional shareholders in public companies stood firm (or at least threatened to do so) when they saw a P2P looming. They were afraid of being taken advantage of by management who knew more about the business than they did. They also feared the embarrassment of the private equity sponsor making significant returns by realising its investment rapidly at a large profit. Now they are simply more likely to sell to the hedge funds which are looking to see a deal go through and realise short-term returns.