Paul Trickett, European head of investment consulting at Watson Wyatt, said: "If returns stabilise now, then for pension funds and other institutional investors the worst of the pain is over but for asset managers the pain is just starting.
Earnings for 2008 were down between 10 and 15 per cent from 2007; that is beginning to look attractive for 2009."
According to the research paper, the ad valorem fee basis on which the industry in centred means that profits will remain under pressure as long as market returns and new inflows remain low and while there is little appetite for raised fees.
It concludes that asset managers will continue to reduce headcount by around 10 per cent (mainly in non-core roles) and costs (mainly in variable pay) by around 20 per cent in order to return to profitability.
"This is clearly an unstable business environment for active managers and 'people' issues are likely to be superseded by 'business' issues as the principal concern of management and chief among these will be consolidation, regulation and sustainability," said Trickett
said: "We do believe that pursuing active returns is a worthwhile activity provided that the resources exist to have a competitive advantage in identifying, hiring and terminating active managers.