Fees on actively managed mutual funds in the U.S. could fall as much as 26%, or $38 billion, by 2012 due to investors’ renewed preference for fixed income and passive investments, Bloomberg reports, citing a report from Boston Consulting Group

This year alone, actively managed fund assets in all classes around the world will decline from $58.9 trillion to $50 trillion, representing a 15% decline, according to Boston Consulting.


Worldwide, the declines through 2012 could reduce the proportion of mutual funds’ revenue out of the total asset management pie to 36%, down from its current 49%.


Last year, active mutual funds took in $147 billion in fees, about the same amount as hedge funds, private equity funds and real estate funds—combined.


The popularity of alternative investments is expected to shoot up to 61% of total fees, and index funds’ share could reach between 3% and 4%.

“Investors have wised up to the fact that the performance of classic active funds has failed to live up to benchmarks,” said Boston Consulting Partner Michael Spellacy. “There’s a shift by consumers to allocate to more passive, lower-fee products, and to the pursuit of alpha, or market-beating performance,” Spellacy said.


What is currently prompting the seismic shift are market losses and investor withdrawals. The average U.S. diversified mutual fund was down 40% through Oct. 31, while the Standard & Poor’s 500 Index was down 37% and the MSCI AC World Index had slumped 43%.

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