More consolidation among funds managers is predicted, as this year’s rebound is still likely to leave them with fewer assets to manage than in 2007, according to a report published yesterday by Watson Wyatt.

The annual Watson Wyatt/Pensions & Investments survey of the world’s largest 500 managers shows total funds under management fell 23 per cent to US$53.4 trillion at the end of last year.

Hugh Dougherty, Watson Wyatt Australia’s head of manager research, said that even after the strong market recovery since March, the firm expected asset values would remain below 2007 levels, meaning the outlook for this year’s revenues and earnings in the sector remained poor.

Australian managers tended to fare worse than their international counterparts, probably due to the higher average exposure to equities and property and the weakening A$ during the second half of 2008.

The 15 Australian managers in the list suffered a 31 per cent decline in total funds under management to US$474.8 billion or 0.9 per cent of the universe. The top five were: Colonial First State (down 39 per cent to US$89.0 billion), Macquarie (21 per cent to US$85.1 billion), AMP Capital (26 per cent to US$72.5 billion), NAB/MLC (27 per cent to US$57.8 billion) and QIC (37 per cent to US$46.7 billion.

The biggest declines among the Australian managers were by Balanced Equity Management (down 56 per cent to US$4.7 billion) and Perennial Investment Partners (50 per cent to US$9.98 billion).

Barclays Global Investors remains the largest asset manager in the world, with US$1.52 trillion, followed by Allianz (US$1.46 trillion), State Street Global Advisors (US$1.44 trillion), Fidelity Investments (US$1.39 trillion) and AXA (US$1.38 trillion).

However BGI’s lead is set to widen significantly when it completes its merger with sixth-placed BlackRock, which had US$1.31 trillion as at December.

Dougherty said: “The asset management industry is undergoing significant change as a result of the extreme market conditions we have witnessed in the past few years.  We expect this will drive increased consolidation as managers look to add assets to their existing cost base to relieve pressure on profits.  An additional challenge for managers is increased regulation, and the likelihood of higher compliance costs.  The fall in trust that managers have suffered from their clients is also a key feature of what is a tough battle-ground.”

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