Investors will continue to be afraid of losing hard-earned money and gravitate to fixed-income and other safe investments, The Boston Consulting Group predicts. As a result, investment management firms need to offer new portfolios and, with fees on these offerings undoubtedly lower than aggressive, actively managed funds, they will have to cut costs even further.

Because firms lost 18% of assets in 2008, ending the year with $48.6 trillion in global assets, profits fell 34% in 2008. Profits will probably decline another 30% in 2009.

Despite the robust returns in the second quarter, Kai Kramer, head of the global asset management practice, told Reuters, “Asset managers cannot be tricked by green shoots and must make sure they are ready if the crisis gets worse again, where firms see more massive outflows or another drop in the market.”

To gain market share, firms should specialize, review how they pay managers and consider mergers. “Fund firms have to do the things they didn’t dare think about,” Kramer said. “You simply can’t serve every investor in every way anymore.”

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