Independent and listed money managers, both traditional and alternative, will capture a third of all assets under management by 2012, up from a quarter today, says a Jefferies Putnam Lovell Report on the Future of Asset Management. They will be the beneficiaries of an historic shift from the retirement mainstay upon which the global fund industry was built, towards a more competitive, performance-related asset management environment. According to Putnam Lovell, commercial banks, insurance companies and investment banks have controlled the global money management business during its infancy, but increasingly they will find it more lucrative to assemble unaffiliated products and play the role of professional buyers rather than fight a losing battle for market share with independent managers. Traditional active management, long-only stock and bond portfolios charging asset-based fees, will contribute less than half of total industry revenue by 2012, down from about 69 per cent in 2006. And more than 50 per cent of revenue will instead come from performance fees, alternative investments rapidly becoming mainstream and proliferating long-short extension strategies. "The days of relying on tax advantages and government subsidies to spur retirement savings and growth in the fund industry are over," said the report's author Ben Phillips, managing director and head of strategic analysis at Jefferies Putnam Lovell. "Individual investors, Asia and sovereign wealth funds will be major sources of new business in the next five years. Yield rather than asset accumulation will increasingly be the focus of investors, boosting demand for a new generation of products." The report predicts that performance, rather than capital or brand, will separate the winners and losers because investor inertia is fading and the price for adjusting slowly to this new environment will rise dramatically. As a result, exchange traded funds and other less-expensive products will increasingly challenge active managers offering closet index performance at higher fees, while hedge funds, now in more challenging markets, will be more easily distinguishable. Institutional-grade firms generating strong performance in all market conditions will gain further market share at the expense of lesser competitors. Putnam Lovell estimates that 20 per cent of the current total, approximately 2,000 funds, will disappear in the next five years. Firms primarily reliant on long-only mutual funds will be under the most severe pressure to reinvent themselves or face dwindling prospects. But sub-advisors will capture increasing share, in particular in the US mutual fund segment where they will control 20 per cent of the market by 2012. Demand for performance fees and customised benchmarks are on the rise, from both institutional and individual investors willing only to pay for out performance. "Fund firms that anticipate and adjust to these new challenges will enjoy a bright future, growing their businesses at the expense of those unable to let go of a rich epoch that’s rapidly fading," said Mr Phillips. Putnam Lovell is a division of global investment and securities firm Jefferies & Co that is focused on the financial services industry. It operates from offices in New York, San Francisco, Boston, and London.