Hedge fund DE Shaw is said to be considering launching a private equity fund. Lehman Bros. has already purchased a 20% stake in DE Shaw’s new venture, according to reports.

DE Shaw already has some private equity investments, including toy retailer FAO Schwarz. Media speculation put the size of the fund at between $1 billion and $2 billion. A call to DE Shaw went unreturned.

DE Shaw’s move shows that convergence between hedge funds and private equity is progressing at a very quick pace. Private equity giant Carlyle Group recently launched its own hedge fund division called Blue Wave. Texas Pacific Group, The Blackstone Group and Cerberus Capital Management already have hedge fund operations. Alternative investment manager Fortress Investment Group has diversified into private equity.

DE Shaw was founded in 1987 by former Columbia University computer professor David Shaw. It is one of the largest hedge fund firms in the world. In recent years, DE Shaw has expanded into long-only funds and loans to small and medium-sized businesses.