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Number of Fund Firms Likely to Shrink

By Steven Miyao

I had an interesting conversation with a client about the impact of the tightened screens from the major broker dealers.

My take on it is that the institutionalization of asset management distribution will have a major impact on the overall size of the industry. Due to the heightened importance of research teams at the wires, regional and even the independent managed account platforms fewer products will make the cut in the advisor-driven channels.

This does not mean that there is no more space for small startup asset managers. But it means that firms who cannot produce significant long-term alpha will disappear. This should be a positive trend for the industry. There were 7,977 individual mutual finds listed in 2005. That is way too many. The average research team manages approximately 100 asset managers (for more on that topic click here). The institutionalization will weed out bad product and ultimately mediocre firms.