A bold prediction from a recent PwC report suggests drastic consolidation is coming to the mutual fund industry. As published in Ignites, their forecast shows that 20% of active boutiques could vanish or be acquired by 2030 amid downward fee pressure. While we purposefully exaggerated the alarming “numbered days” headline (industry gurus have been saying this for decades), make no mistake – intensifying competitive forces demand strategic adaptation and preparation for difficult days ahead.
For years, investment giants like BlackRock, Vanguard, and State Street have been chipping away at traditional stock-picking fund companies with ETFs. The meteoric rise of passive index funds and ETFs has accelerated the push towards ultra-low-cost products. The COVID crisis only heightened cost sensitivity among investors.
Now, PwC forecasts more mutual fund carnage awaits. Small and mid-sized fund shops could disappear entirely. Even large traditional managers will feel intense pressure from the Big Three passive giants bearing down.
Key Consolidation Statistics Paint a Grim Picture
The statistics PwC cited spell possible doom for many traditional mutual fund providers trying to stay afloat in this environment:
- The top 5 mutual fund managers will represent 65% of all mutual fund assets by 2030, up from 55% in 2020. The winners in this consolidation will be the Vanguards of the world.
- Up to 20% of mutual fund providers today may either be acquired or vanish in the next 7 years. That means 1 in 5 firms could disappear – a staggering level of consolidation.
- Mutual fund fees are predicted to plunge nearly 20% by the decade’s end to meet competitive pressures. With lower fees to collect, more managers will struggle to remain profitable.
- Passive index mutual funds and ETFs will swell to 58% of assets by 2030, up from 44% today. Investors have clearly demonstrated their preference for low-cost investments tracking market benchmarks.
Surviving the Consolidation Gauntlet
Fending off acquisition or failure in this environment will require agility and decisive action for mutual fund shops today. As PwC’s US Mutual Funds Leader Peter Finnerty stated, “They will need to drive strategic positioning, and technology and innovation” to stay competitive with the largest players.
Fund companies should ask themselves tough questions about their strategy, differentiation, operational efficiency, and future viability if consolidation accelerates as predicted.
Potential survival strategies could include:
- Strengthening your firm’s story so investors take notice and see you as a serious player they can believe in
- Looking the part through your brand, website, and materials to reinforce credibility
- Committing to growth by taking a proactive approach to marketing and sales rather than relying on word-of-mouth referrals
- Investing in sales and marketing technology to engage prospects more efficiently and better capitalize on what limited resources boutiques have
Of course, some fund shops may determine they lack viable paths to maintain independence or profitability if the projected mutual fund shakeout transpires. In those cases, an orderly acquisition by a larger competitor on favorable terms could be the most prudent outcome.
Silver Linings Emerge
But for others willing to transform, opportunities can emerge from consolidation pressure. Financial advisors are increasingly seeking out specialized funds on behalf of clients looking for unique portfolio exposures. Many boutiques have strong pedigrees and competitive strategies relative to even the largest asset managers. Plenty of firms offer differentiated approaches that fill specific portfolio needs.
There remains a significant contestable share among selective advisors and high-net-worth investors looking beyond plain vanilla index products. For boutiques with compelling stories that resonate with the right audiences, plenty of room exists to thrive amid consolidation shakeups. Mutual fund managers face a critical test proving they can adapt business strategies and messaging to today’s more discerning financial gatekeepers. But those passing that test may find the next decade more fertile than feared.
For a deeper dive, see our article “13 Considerations for Stronger Mutual Fund Marketing and Sales,” – which analyzes trends changing how boutiques successfully attract assets and build credibility with financial advisors in this new era.
Ready to elevate your firm’s position and credibility even as the industry consolidates? Schedule a free strategy session to discuss opportunities to update your value proposition, strengthen your brand, and better attract and serve advisors and investors.
Dan Sondhelm is the CEO of Sondhelm Partners, a firm dedicated to helping boutique asset managers grow their businesses, strengthen institutional credibility, and build influential brands.