Aaron Dorr, a veteran banker recently let go by Jefferies & Co., has found a new home.

Dorr has joined Sandler O’Neill and will head the firm’s asset management group, according to a statement. Dorr will be based in New York and will report to Brian Sterling and William Hickey, Sander’s co-heads of investment banking.

Kelso & Co. and the Carlyle Group are investing in Sandler O’Neill, the investment bank known for advising financial services firms.

New York-based Kelso, a PE firm, and Carlyle are making a “substantial minority investment” in Sandler, according to a statement. Financial terms weren’t disclosed and the deal is expected to close later this year. Sandler’s management team, led by James Dunne and Jonathan Doyle, are expected to remain in place. All of Sandler’s existing 50 partners are participating in the deal. Sandler has also inked multi-year non-compete agreements with the partners to keep them at the firm.

Private equity firms The Carlyle Group and Kelso & Co. are buying a minority stake in privately held investment bank Sandler O’Neill, Reuters reported. The financing, terms of which were not released, is designed to fund growth. The deal will close at the end of 2010, Reuters said.

PE firms are on the hunt for banks again, several sources say.

Interest is so great that i-bank Sandler O’Neill & Partners is handling mandates from at least 15 banks that are looking to recapitalize. And the primary source of new funds? Buyout shops.

“All the small banks in the world are trying to find new capital,” says one banker. “PE is the only real money for any deal,” adds a buyout executive.

Independent Bank Corp., parent of Independent Bank, and AnchorBancorp Wisconsin, which owns AnchorBank, are each in talks with PE firms for funding, sources say.