Higher compliance costs and sluggish industry growth are contributing to a recent resurgence in merger and acquisition activity among smaller mutual fund companies, according to senior members of the $8.1 trillion industry.

And despite further shake-up that looms on the horizon, bigger fund firms are still raking in profits, the fund executives say in a July 6 report from the Financial Times.

While Boston's Fidelity Investments and Vanguard Group of Valley Forge, Pa., the industry's two biggest firms, together only hold 12 percent of the market, industry profit margins average about 30 percent.

But smaller outfits like AmSouth Bancorp of Orlando, Fla., which last week shed its $5.5 billion fund management business to Boston-based Pioneer Investments for $65 million, says it's become "more difficult and more expensive for small mutual fund families to compete effectively."

Chip Mason, chief executive at Baltimore-based Legg Mason, said that a fund company now needs at least $50 billion under management to be competitive. Of the 500-plus mutual fund companies in the U.S., only 38 occupy that realm.

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