Active managers face a fall in earnings of up to 50 per cent this year, according to a report from Watson Wyatt.

The research report found that asset managers were starting 2009 with revenue at 30 to 50 per cent below the start of 2008 levels, which was already down 10 to 15 per cent from 2007.

"If markets are flat then asset manager earnings in 2009 will be much lower than 2008," the report said. Faced with falling earnings, managers could acquire more assets, according to Watson Wyatt.

"We have already seen several mergers, acquisitions and firm closures over recent months. We are expecting this trend to continue," Watson Wyatt head of manager research Hugh Dougherty said.

Profit pressure can be countered by adding new assets to the existing cost base. Consequently, Watson Wyatt sees an increase in the number of asset management acquisitions, according to the report. 

While Watson Wyatt did not predict a specific fall in the number of active managers in the industry, the report said there was such a thing as too much active management.

Reducing the number of asset managers in the industry would not change the odds of achieving positive alpha, but it would mean less of the underlying asset return would be spent on the pursuit of alpha, the report said.

Ownership will not be a big issue given the difficult markets.

"We are expecting the nameplates of existing asset managers to change substantially over the next few years," Dougherty said.

"While in the past there has been a negative bias against a change in ownership, in the new environment some of these changes could be materially positive for the survivorship of a firm or a team within a firm."