Hedge funds and private equity firms have been encroaching on each other's turf for quite some time now. This is due in part to an attempt to seize attractive opportunities, but it also reflects a need to invest ever growing asset bases.

Dennis Berman in the Wall Street Journal notes the curious case of the Blackstone Group's purchase of a 4.5% stake in Deutsche Telekom. Blackstone has borrowed to make the investment, but will earn a sizable dividend in the interim. More interesting is what it means for the alternative investment industry.

A closer look at the deal offers another lesson: The distinctions between private equity and hedge funds are evaporating as they battle for investors' money. The competition could mean lower returns for both.

The Deutsche Telekom deal looks more and more like a trade-oriented hedge-fund move than a private-equity deal that focuses on seizing operational and boardroom control.

Although not mentioned it would be interesting to hear what Blackstone's limited partners think of this sort of hedge fund-like transaction. Whether they like it or not it is clear that the public markets still have an appetite for all things "alternative." We have written previously on the historical inevitability that alternative investments would seep into the realm of the publicly traded.

Emma Trincal at TheStreet.com reports on the growing likelihood that we will see a hedge fund operator go public at some point in the future. Given the growing asset bases and the potential to monetize one's stake it seems like a no-brainer.

"You're going to see several hedge funds trying to list in the States as well," says Ben Philipps, managing director at Putnam Lovell. The reasons are simple. The public markets offer higher multiples for all hedge fund companies than on the private sector, Phillips says. Also, investors' sentiment has been exuberant about hedge funds.

There is at this point in time no reason to believe that the continued interest in alternative investments will end any time soon. Steven Schurr in the FT.com interviews the new head of alternative investments at Morgan Stanley (MS). He finds the interest in hedge funds is only growing. In fact hedge fund like strategies are being adopted by traditional mutual funds.

But he also notes that as hedge fund strategies increasingly move into the mainstream, the wall between hedge funds and mutual funds is breaking down. Traditional asset managers are increasingly adding hedge fund-like investments, such as “130/30” funds – the 130 representing a 130 per cent long position, using leverage, partially hedged by a 30 per cent short position.

“It is no longer hedge funds on one end and mutual funds on the other, it is about modern asset management,” he says. “For instance, Threadneedle is considered a traditional UK asset manager but it is home to some of the most alternative approaches to modern investing. The winners will be the asset managers with evolving models.”

In some sense this cross-fertilization is a good thing. It is heartening to see mutual funds utilize strategies that allow them to better maximize whatever information they have in the portfolios they manage. Indeed for hedge funds and private equity there clearly is overlap.

If a firm has a particular insight into an industry it need not limit itself only to public equity or private investments. The best opportunity may be in one or both. However investors do need to question their managers when they seemingly venture into areas solely for the purpose of putting excess cash to work. One need not pay the heavy freight of 2 & 20 for ill-informed cash management services.