By Claire Racine

The asset management industry will experience continued polarisation in 2009, with bigger firms getting bigger and smaller firms reducing in number, according to consultants Hymans Robertson.

In its annual survey of UK asset managers, Market Briefing, the firm forecasts a reversal of the last three years' steady rise in headcount at investment management houses as redundancies begin to affect front office operations.

Asset allocation continued to be dominated by bonds in 2008 and although overall equity holdings fell, this was mainly due to market movements, said John Dickson, head of investment consultancy at Hymans Robertson.

“Property allocation has remained static, while the increased allocation to alternatives in past years has now stalled, but we expect this to resume once market conditions normalise,” Dickson said.

“Meanwhile, our annual survey shows that pension schemes are typically reducing their UK equity holdings in order to fund increased overseas equity exposure, ensuing greater diversification.”

Hymans Robertson believes active management as an investment strategy will deliver strong relative returns, despite dismal underperformance for many active managers.

Many active managers use quantitative models with historic pricing and volatility to predict future risk, said Stephen Birch, head of manager research at Hymans Robertson. These models prevented accurate sizing of market risk in 2008.

“We would argue that the case for a recovery in active management performance is strong,” Birch said.

“Active managers will tend to find greater opportunities to add value when markets are inefficient, irrational and driven by sentiment, rather than by fundamentals.”