In my last few posts I talked about risk on risk off (RORO), return optimization around volatility (ROVO), and Natixis’ new volatility team, all part of the industry metatrend of #MultiConvergence, which I will write about in my next global analyst column for aiCIO later this month.

Let’s focus for a minute on the product convergence in the industry – the increasingly blurry lines of demarcation between traditional and alternative products, strategies, and managers.

The top selling retail fund manager globally last year, Franklin Templeton (FT), today announced the acquisition of $10 billion fund of hedge fund manager K2 Advisors Holdings (not to be confused with PE firm K1 in Singapore that recently heavily invested in Guggenheim Partners to help them grow globally as they were looking to buy Deutsche’s US assets).

Technically it’s only a majority stake for FT at the moment – the remainder will be purchased through 2016 -, but it clearly shows FT focusing on the ultra fast growth segment of alternatives and investment solutions.

Institutional investors globally in recent years have heavily shifted strategic allocations to alternative buckets and investment solutions, often at the expense of equity allocations. And with risk-based and factor-based investing catching fire of late, Greg Johnson sees “the new relationship with K2 as an important step in our overall plan to expand Franklin Templeton’s alternative strategies and solutions platform.”
He is not alone.

Other asset management Goliaths such as BlackRock, PIMCO, or JP Morgan have acquired and/or built out alternative assets en masse, and others such as Schroders, Eaton Vance, Oppenheimer Funds et al have made investments as well, trying to alter the brand and message.

Of course, this goes both ways. As the latest Ucits framework and its product directive opened up the door to more sophisticated product construction, we have seen alternative asset managers move into the traditional space, creating “Newcits” for institutions in need of a globally accepted framework to invest with them.

And on a product level, we have seen many interesting permutations getting attention. American Funds earlier this year raised $3 billion in a new private equity fund, Pictet has been known to partner with hedge boutiques, and GAM or MAN are in a range of product partnerships around the world.

Overall, product convergence and a focus on alternatives and investment solutions across distribution channels, geographies and wealth levels will increasingly blur lines of demarcation and create more competition among investment managers.

E = MC2…..the Era of MultiConvergence2. Better be ready.

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(c) Enskat Associates 2012