Amid the relentless pursuit of scale and diversification, traditional asset managers are expected to keep consolidating, Fitch Ratings says.
In a new report, the rating agency highlighted the continued pressure on profits in the asset management sector, despite strong financial markets — as firms grapple with ongoing fee compression, rising distribution costs and elevated technology and compensation expenses.
Firms’ average margins “have struggled to expand, as continued penetration by cheaper passive products has increasingly commoditized investment offerings, especially of higher margin equity products,” it said.
At the same time, firms are also facing headwinds from inflation, and compliance and technology costs.
And, at the macro level, there are concerns that the economic fallout from the U.S.-Iran war “could negatively affect asset values, net inflows and ultimately fees,” Fitch said — noting that its outlook for sector is “deteriorating” against the negative economic backdrop.
In response to these kinds of pressures, industry merger and acquisition activity has been “robust,” Fitch noted — as fund managers with greater scale and diversified product lineups are “best positioned to navigate” the industry’s challenges.
“Within our portfolio, sizable acquisitions of rated investment managers took place in 2025 and [the first half of 2026], aiming to create synergies and strengthen franchises,” it said. Some firms have also made smaller deals in pursuit of product diversification, it added, by expanding into alternative asset categories, such as private credit.
These deals have generally been completed without raising concerns about excessive leverage, Fitch noted.
“Where debt has been issued to fund M&As, particularly for private equity owned [fund managers], leverage remains within respective rating tolerance levels,” it said.