AEA Investors, a mid-market private equity firm, and Aetos Capital, a real estate and fund of hedge funds manager, have merged to create a new force in alternative investment with $7bn (€5.4bn) in assets under management.

The tie-up is believed to be the largest merger of a private equity firm and a hedge fund and the latest example of convergence of the two, following multi-product alternative asset offerings from Blackstone and the Carlyle Group.