Add Sowood Capital Management to the roster of hedge funds that have moved seriously into private equity. According to Financial News, the Boston-based hedge fund, formed nearly three years ago by former staffers at Harvard Management Co., expects to complete the spin-off of its private equity operations by mid-2007. The new entity, named Denham Capital Management, reflects Sowood's--and the industry's--growing appetite for private equity and its eagerness to satisfy hungry investors in that sector. "Over the past two years," co-founder Jeff Larson told FN, "our private equity capability has grown tremendously. At this point, we essentially have completely independent investment businesses." Larson went on to say that the split will "maximize the flexibility--and opportunity for success--of each business." It certainly helps that Sowood already manages some of Harvard's alternative investments, and that the endowment's new head, Mohamed El-Erian has expressed a desire for "deepening this relationship." Denham will be led by Stuart Porter, who currently runs Sowood's private equity practice, and will have nearly three dozen employees. Sowood will continue with Larson and Megan Keller at the helm. The new firm is the latest p.e. drift for hedge funds. Eton Capital Management already has about one-third of its assets in private equity, notes FN, while Odyssey Partners and Pequot Capital Management have private equity units. Some hedge funds, such as Centerbridge Partners, get into private equity just by launching p.e. funds.