Fund Sector Set for Shake-Out, Say Experts

The mutual-fund sector should brace itself for sweeping changes over the next two years, during which a handful of big players will come to dominate asset management for both private and institutional investors.

This is the view of Peter Schwicht, head of institutional business in continental Europe for JP Morgan Fleming.

The forecast that only the big will survive, and only a few of them at that, was echoed by Friedrich von Nathusius, managing director of Citigroup Asset Management, and Günter Merl, chief executive of the public-sector Landesbank Hessen-Thüringen.

Mr. Merl's bank is moving on two fronts to prepare for the changes.

First, it's shifting focus to domestic products to keep growth strong.

Second, it's forging cooperations with other funds to expand the product line. For example, it's working with Northern Trust in corporate bonds.

The current bear market for stocks will only accelerate the consolidation process, according to Mr. Schwicht.

Costs are rising and as they do, the trend to internationalize picks up speed, he said.

As in investment banking, a few big houses – such as Goldman Sachs Group Inc., Morgan Stanley Dean Witter & Co. and Merrill Lynch – will handle the large majority of business within, at most, five years.

Mr. Schwicht also sees good chances for Fidelity, Merrill Lynch & Co., Invesco and JP Morgan Fleming to stay in the major league of asset management.

Swiss bank Credit Suisse Group and British-Swiss UBS Warburg LLC are also candidates, along with Germany's Deutsche Bank AG, he said. But niches won't disappear completely, according to Mr. Nathusius.

Christian Schlenger, managing director of Alpha Portfolio Advisers, agrees. "Plenty of money can still be made, if, for instance, specialists focus on growth stocks," he said.

According to Mr. Schlenger, none of the big players will be able to afford to avoid Germany, where the market has the greatest growth potential in Europe, owing not least to the country's pension reform, he said.