The asset management industry is experiencing the most severe stress testing in living memory. A credit freeze, falling valuations and savage investor redemptions have forced firms to sell non-core assets, close or merge funds and undergo fundamental policy reviews. A recent survey found that assets managed by the world’s largest 500 fund managers fell by over 23% in 2008 to $53.4 trillion, down from $69.4 trillion in 2007.

Carl Hess, global head of investment consulting at Watson Wyatt, said: “2008 was a dreadful year for fund managers with the majority posting record losses. Even after the strong market recoveries since March this year, our expectation is that values will remain below 2007 levels, meaning the outlook for this year’s revenues and earnings in the sector remain poor.” The survey, conducted by Watson Wyatt and Pensions & Investments newspaper, reveals that the top 20 managers accounted for a...