Rising concentration in the asset management industry is likely here to stay.
The 10 largest global asset managers commanded more than half of the global retail fund market by assets under management at the end of 2024.
While the 10 largest players stayed the same as those from five years ago, their respective market shares have evolved. Vanguard and BlackRock increased market share mainly through success in their passive fund businesses. Traditional active asset managers like Franklin Templeton lost market share, despite being an active player in mergers and acquisitions.
Expanding investment capabilities and tapping new markets are motivations to engage in M&A. But for foreign asset managers, entering a new market like China isn’t so simple. Vanguard famously exited China after just seven years.
While the objectives and potential benefits for asset managers to engage in M&A are clear, achieving them is easier said than done.
Below, we’ll examine the factors driving consolidation and consider some ways asset management firms can stay competitive in this M&A-heavy landscape.
3 Factors Driving Asset Management Industry Consolidation
1) The Persistent Drop in Fees
Fee pressure has been an ongoing headwind in the asset management industry.
Perhaps the most important cause has been the move toward low-cost index funds and passively managed products. As many active managers struggled to beat their benchmark indexes, investors questioned the higher fees and flocked toward index funds.
The decades-long move toward a fee-based rather than commission-driven financial advice model—a prominent trend in the US and Europe—has also made funds without embedded trailing commissions more prevalent.
According to the Morningstar US Fund Fee Study, the average expense ratio paid by US fund investors was less than half of what it was two decades ago. (In 2024, the asset-weighted average fee for active US equity funds was 0.60%; it was 0.08% for passive US equity funds.)
Morningstar research continues to show that fees are the best predictor of future results, and this holds true across the global fund markets. More expensive funds are more likely to be liquidated or merged, and those in the cheapest fee quintile delivered higher average total returns than those in the most expensive quintile.
Economies of scale are key when it comes to traditional passive management: The larger the asset base, the more a firm can spread its costs, allowing more room to lower expense ratios for investors. Passive managers Vanguard and BlackRock’s iShares brand know this all too well.
Fee pressure shows no sign of abating. Already known for its low costs, Vanguard announced the broadest fee cuts in its 50-year history across almost 90 funds in February 2025, with cost reductions ranging from 0.01% to 0.06%. While this is a win for investors, it’s a tough situation for asset managers, particularly those that cannot improve their cost base or offer higher-value, differentiated products.
Mergers and acquisitions are one way that asset managers can respond to these fee pressures. Invesco embraced the passive business through its 2006 purchase of PowerShares.
2) Access to Untapped Markets Like China
An asset manager can use M&A to gain access to new investment capabilities or distribution channels, both of which can bring a new client base to the firm.
In particular, some foreign asset managers have used acquisitions to expand their presence in China. China’s asset management industry has seen explosive growth over the past two decades or so, driven by an increase in domestic income and a growing appetite for fund products from local investors.
Meanwhile, the local regulator has been gradually opening its capital markets to foreign investors, which allows foreign asset managers to participate in the local fund industry.
There have been a few ways for foreign asset managers to enter the Chinese market:
- Some create joint ventures with local players as minority shareholders, such as Invesco Great Wall Fund Management and HSBC Jintrust Fund Management.
- Others, including BlackRock, Neuberger Berman, and Fidelity International, chose to expand organically in China through establishing wholly owned onshore mutual fund businesses.
- A notable few, namely Manulife, J.P. Morgan, and Morgan Stanley, bought out their joint-venture partners and took full control of their onshore entities. This approach comes with clear advantages: The foreign asset manager can readily access established fund distribution networks to market their products to onshore investors and acquire the often-sizable and on-the-ground investment teams, as well as other existing operational infrastructures.
However, integration can be difficult.
Local investment teams often invest with a momentum-driven and shorter-term mindset, as seen from the average portfolio turnover of 400% for domestic China funds, and it could be challenging for them to adopt the foreign asset manager’s typically more fundamentally driven, longer-term investment approaches.
Cultural differences, language barriers, and, at times, regulatory obstacles could hinder the offshore units from tapping into the research expertise of the onshore investment teams. Furthermore, China has a highly fragmented asset management industry, with immense competition coming from well-established local brands.
3) An Appetite for New Investment Capabilities
Another impetus for an asset manager to acquire a firm is to obtain new or additional investment capabilities. Today, this is particularly relevant in specialized areas, such as direct lending, private equity, or alternatives investing, where it may take much time and effort to build an in-house capability organically.
Franklin Templeton, for example, has been on a buying spree to add alternatives capabilities to its multiboutique roster. These purchases include:
- Four alternatives managers since its acquisition of US-based alternatives credit manager Benefit Street Partners in 2019.
- Europe-based private credit firm Apera Asset Management in June 2025.
- Asset management firm Legg Mason, which itself operated a multiboutique model. This purchase gave Franklin Templeton access to Legg Mason’s alternative asset managers: RARE Infrastructure, an Australian infrastructure specialist; Clarion Partners, a leading US-based real estate investment firm; and QS Investors, a US quant shop.
Thanks largely to these acquisitions, the share of alternative assets has more than doubled to 15% of Franklin Templeton’s total AUM at the end of 2024, from 7% at the end of 2019. Altogether, Franklin’s alternatives book of $249 billion in AUM as of year-end 2024 stood as one of the largest among diversified asset management firms.
The acquisition of Legg Mason also brought major fixed-income house Western Asset Management under Franklin’s umbrella. This not only significantly expanded Franklin’s fixed-income business but also helped it diversify away from the global fixed-income strategies led by Michael Hasenstab, which accounted for a large part of Franklin’s fixed-income book before the merger.
What Asset Managers Can Do to Stay Competitive
Asset management is a competitive business, and continuous delivery of investment excellence is essential. At Morningstar, we prefer asset managers that have a culture of stewardship and put investor interests first, compared with those that are more focused on salesmanship.
The former type of firm tends to operate within its circle of competence, do a good job of aligning managers’ interests with those of investors in their funds, charge reasonable fees, communicate well with fund investors, and treat investors’ capital as if it were their own.
Conversely, firms that prioritize salesmanship tend to offer faddish products—at times outside of their investment expertise—in an attempt to gather assets, have poor capacity management, and charge higher fees.
Vanguard has long stood out as a stalwart asset manager for investors. It charges extraordinarily low fees on its products, and its mutual ownership structure—where the firm is owned by the funds it manages, and thus ultimately by its fund investors—fosters an investor-centered ethos. Thanks to these investor-friendly traits, Vanguard has attracted a large following over the years and has steadily gained market share to become the largest asset manager in the world.
Asset managers who put investors’ best interests at heart deliver good investor outcomes and can maintain or even expand their competitive edge over time.
One way to do so is to adapt to sustained trends. Today, that means thinking about diversifying from traditional active fund management in open-end mutual funds into nascent areas with long-term structural growth potential, like private assets. Private markets, including private equity, private credit, and real assets, have grown tremendously over the past two decades, partly as companies are now staying private for longer.
Private assets have long-term growth potential and interest from investors. Private market investing also helps asset managers cope with the industry’s fee pressure, as private market funds typically charge higher fees, given the greater complexity. BlackRock’s recent wave of acquisitions in the private market space underscores its strategic ambitions in this space.