This is the second article in our two-part series summarizing the key insights from a provocative recent report by Citi Prime Finance (Citi).  The report describes a massive opportunity for capital raising in so-called “liquid alternative” investment products, including alternative mutual funds, ETFs and UCITS.  At the same time – and not surprisingly – the report discusses a blurring of the lines between traditional, hedge and private equity (PE) fund managers as all three categories of managers pursue strategies that broadly fall under the rubric of “liquid alternatives.”  It’s a large pie indeed, but with many players looking for a piece.  To help managers increase their odds of obtaining a piece, this article provides a comprehensive summary of the portions of the Citi report covering the “convergence” of services provided by traditional, hedge and PE managers; the “credibility gap” faced by firms that seek to operate in the convergence zone; how traditional asset managers and PE firms are turning to hedge fund managers for talent as they seek to offer liquid alternatives; and the challenges and choices facing hedge fund managers as the market for liquid alternatives develops.  Part one of this series summarized the portions of the Citi report covering the shifting role that hedge funds play in an institutional investor’s portfolio; how regulatory changes have affected the hedge fund market and helped to make liquid alternatives more attractive; the growing “retail” demand for liquid alternatives; and Citi’s predictions for the growth of the retail alternative market.  See “Citi Prime Finance Report on Liquid Alternatives Describes a Massive Capital Raising Opportunity for Hedge Fund Managers Willing to Go Retail (Part One of Two),” Hedge Fund Law Report, Vol. 6, No. 21 (May 23, 2012).