Highfields Capital Management, a Boston-based hedge fund, has made an unsolicited $3.25bn (€2.5bn) takeover offer for Circuit City, a struggling US retailer. Industry sources predict it is the first of many such deals as hedge funds move to compete with private equity.

Andrew Gale, a director at Dexion Capital, the placement agent and investment consultant, said: "Hedge funds are increasingly looking at parts of the market that have not traditionally been considered their area, including buy-outs and the lending market. Private equity and hedge funds are coming together, it's a natural progression."