Troubled funds industry heading for shake-up

By Laurence Fletcher

BARCELONA (Reuters) - The 7.4 trillion euro (5.9 trillion pound) European fund management industry is set to emerge from the current bear market in markedly different shape as banks and insurers sell fund units and weaker firms fall by the wayside.

European fund managers face a period of unprecedented strain on asset flows and profits, as nervous investors flee equity and bond mutual funds in favour of safer and lower margin products.

As banks and insurers grapple with subprime writedowns and slower future growth, a non-core asset manager with its own lack of profit growth is likely to look less and less attractive to own, especially at a time when making disposals offers a way to raise capital.

Fund executives are now openly discussing the future shape and ownership of the industry as the bear market takes hold.

"I think ... profits are going to come under pressure for a lot of fund management groups and I think that might lead to a desired shakeout of the weaker players, particularly the weaker performers," Helena Morrissey, chief executive of Newton Investment Management, told this week's Fund Forum 2008 in Barcelona.

"I think we will likely see that (consolidation) if the bear market continues because (with) a lot of the bank-owned companies the banks and the shareholders will lose patience and will try to cut out the costs."

The credit crisis that began last summer has prompted widespread market falls and has hit investor sentiment hard.

In the first quarter of 2008, UCITS (Undertakings for Collective Investment in Transferable Securities) funds saw net outflows of 31 billion euros.