Diversified financial institutions such as hedge fund businesses will drive global investment management mergers and acquisitions in the second half of this year, according to a report by Jefferies Putnam Lovell, part of the US investment firm, Jeffries.

Dealmaking in the first half of the year slipped slightly from the first half of 2007, due to smaller transactions, record M&A involving alternatives managers, and a lack of fund company initial public offerings, said the report entitled Nowhere to Hide, a review of first-half 2008 M&A activity in the global asset management and financial technology industries.

The number of deals over the next 12 months should maintain the pace of the past six months, but the aggregate deal value and assets under management changing hands is expected to increase, inflated by capital-raising moves of damaged financial institutions, the review said.

"Pursuit of non-traditional investment products, international expansion, and attempts to restore balance sheets at banks and other financial institutions will drive asset management dealmaking activity in the months ahead," said Aaron Dorr, New York-based managing director at Jefferies Putnam Lovell. "In the financial technology arena, strategic buyers will show enthusiasm for select technology vendors that appeal to the buy side, custodians, and exchanges."

In the first six months of 2008, buyers spent about $10.6 billion to acquire partial or full ownership of 104 fund managers, compared to $36.9 billion in 115 deals for the year-earlier period. About $909 billion of assets under management changed hands during the first half of 2008, compared to $1.23 trillion during the same period in 2007. A record 38 per cent of transactions involved alternative asset managers, compared with 30 per cent during the first six months of 2007.