Mutual Funds (Actively Managed)

# Executive Summary * The actively managed mutual fund industry is undergoing a fundamental transformation, driven by a persistent investor shift from traditional, higher-fee products to lower-cost passive strategies and more efficient active ETFs. * This structural change is causing relentless fee compression across the industry, directly impacting revenue and profit margins for all but the most scaled or strategically diversified firms. * In response, companies are aggressively investing in advanced technologies, particularly artificial intelligence (AI) and blockchain, to enhance investment performance, create innovative products like tokenized funds, and achieve critical operational efficiencies. * A primary growth strategy involves pivoting towards higher-margin alternative investments and private markets, which is fueling significant merger and acquisition (M&A) activity within the sector. * Financial performance is bifurcating, with diversified giants like BlackRock capturing new flows, while traditional specialists such as T. Rowe Price face continued outflows from their legacy products. * The competitive landscape is consolidating, increasingly favoring firms that possess immense scale, a diversified business model that includes wealth management, or a distinct technological advantage. ## Key Trends & Outlook The actively managed mutual fund industry is navigating a profound and sustained structural shift as investors increasingly favor lower-cost passive funds and more tax-efficient active ETFs. This migration directly pressures Assets Under Management (AUM) and triggers intense fee compression, forcing a strategic overhaul across the industry. In September 2025, long-term active funds experienced net outflows of $7.45 billion, while long-term index funds attracted a substantial $59.71 billion in net new assets. This creates a clear divide, exemplified by BlackRock's (BLK) strong ETF net inflows of $107 billion in Q1 2025, including $9 billion in active ETFs, versus T. Rowe Price's (TROW) $7.9 billion in net client outflows in Q3 2025, primarily from U.S. equities and lower-fee vehicles. In response, managers are now launching more active ETFs than passive ones, with 654 actively managed ETFs launched globally in the first half of 2025, outnumbering passive ETFs for the first time. The average fee investors paid for mutual funds declined from 0.86% in 2005 to 0.42% by year-end 2024, falling slightly from 0.44% a year prior. T. Rowe Price's average annualized effective fee rate declined by 3.90% to 39.10 basis points in Q3 2025, while Virtus Investment Partners' (VRTS) average fee rate fell slightly to 41.7 basis points in Q1 2025 from 41.9 basis points in Q1 2024, underscoring the pervasive nature of fee compression. To combat margin pressure and create new value, firms are racing to deploy technology. This investment serves two purposes: driving down costs through AI-powered analytics and automation, and enabling product innovation that was previously impossible. Franklin Resources (BEN) is at the forefront, having launched its Benji money market fund offering digitally native exposure on-chain and enabling intraday yield, and has secured a patent for its proprietary wallet. Other firms are also developing tokenized versions of traditional funds, with Federated Hermes (FHI) actively developing tokenized money market funds and digital asset infrastructure, including a GENIUS Act-compliant money market mutual fund for stablecoin reserves. T. Rowe Price is also investing significantly in AI tools like 'Investor Copilot' to drive productivity and enhance alpha generation. The most significant growth opportunity lies in expanding into alternative investments like private credit and infrastructure, which offer higher fees and diversification benefits that are in high demand. This strategic pivot is evident in BlackRock's acquisition of Global Infrastructure Partners (GIP) and T. Rowe Price's acquisition of Oak Hill Advisors (OHA), dramatically expanding its footprint in private market alternatives. Franklin Resources aims to fundraise at least $100 billion across private markets over the next five years and recently acquired a majority interest in Apera Asset Management, a pan-European private credit firm. The primary risk for the industry is for traditional managers who fail to adapt their product lineup and cost structure to the new realities of ETF dominance and fee pressure, risking continued AUM erosion and margin decay. Macroeconomic factors, including interest rates, inflation, and geopolitical uncertainty, continue to influence market volatility and investor sentiment, driving demand for specific asset classes such as money market funds. ## Competitive Landscape The actively managed mutual fund industry is experiencing increasing concentration, with projections indicating that mega managers will account for 65% of U.S. mutual fund AUM by 2030, a significant rise from 55% in 2020. This trend highlights a competitive landscape where distinct business models are emerging to navigate the evolving market dynamics. Some firms, exemplified by BlackRock (BLK), compete on unparalleled scale and a diversified platform. As the world's largest asset manager with $11.58 trillion in AUM in Q1 2025, BlackRock leverages its extensive product array, including iShares ETFs, and its proprietary Aladdin technology platform, which integrates risk management and portfolio analytics across public and private assets. This "Diversified Scale Leader" strategy allows BlackRock to absorb fee compression more effectively, benefit from flows across active and passive strategies, and generate high-margin revenue from its technology services, which saw a 16% year-over-year increase in Q1 2025. In contrast, other firms with deep roots in traditional active management, such as T. Rowe Price (TROW), are now pivoting toward alternatives to counter outflows. T. Rowe Price, a "Traditional Specialist Undergoing Transformation," is known for its rigorous fundamental and quantitative analysis but experienced net client outflows of $7.9 billion in Q3 2025. In response, the company is strategically transforming its business model by expanding into new vehicles like ETFs and SMAs and significantly growing its private market alternatives through acquisitions like Oak Hill Advisors (OHA). This approach aims to defend its core active management expertise while building capabilities in higher-growth, higher-fee areas. A third group, exemplified by Ameriprise Financial (AMP), integrates asset management within a broader financial services ecosystem that includes wealth management and advisory services. This "Diversified Financial Services Integrator" model creates a captive distribution channel for its investment products and generates stable, fee-based revenue from advice, insulating the firm from pure AUM-based volatility. Ameriprise's Advice & Wealth Management segment is a core profit driver, with advisor productivity increasing 10% to $1.1 million in Q3 2025, providing a stable foundation that supports its Columbia Threadneedle asset management arm. The key competitive battlegrounds in this evolving landscape include the race to launch innovative active ETFs, the push to democratize access to alternative investments, and the aggressive deployment of technology to enhance both investment performance and operational efficiency. ## Financial Performance Revenue growth in the actively managed mutual fund industry is bifurcating sharply, driven primarily by companies' exposure to secular growth areas versus challenged legacy products. Ameriprise Financial (AMP) exemplifies the success of a diversified model, reporting a robust +12.6% year-over-year revenue growth in Q3 2025. In contrast, T. Rowe Price (TROW), a more traditional active manager, reported a more modest +6% year-over-year revenue growth in Q3 2025. Despite overall market appreciation, this growth reflects the significant headwind from its $7.9 billion in net client outflows during the same quarter, primarily from U.S. equities and lower-fee vehicles. This divergence underscores how firms with strong exposure to categories like wealth management, ETFs, and alternatives are posting strong growth, while those more reliant on traditional active mutual funds face revenue stagnation or decline as AUM and fee rates fall. {{chart_0}} Profitability margins are also diverging based on business mix and scale, reflecting companies' ability to offset persistent fee compression. Ameriprise Financial (AMP) stands out with a high adjusted operating margin of 52.8% in Q3 2025. This exceptional profitability is largely driven by its highly profitable advisory business within its diversified financial services model, which provides a stable, high-margin revenue stream that insulates it from the direct pressures on asset management fees. BlackRock (BLK) also demonstrates strong profitability, reporting an adjusted operating margin of 43.2% in Q1 2025. This is a testament to its immense scale and the high-margin revenue generated by its proprietary Aladdin technology platform, which provides a significant competitive advantage. Firms without these advantages feel the full impact of declining fees on their profitability, highlighting the importance of scale, operational efficiency, or a diversified business model to maintain healthy margins. {{chart_1}} Capital allocation strategies across the industry are focused on two main priorities: transforming the business model for future competitiveness and consistently returning capital to shareholders. Companies are strategically deploying their cash flow to invest heavily in key areas such such as technology, including AI and blockchain, and through mergers and acquisitions (M&A) to gain capabilities in high-growth alternative investments. Franklin Resources (BEN) exemplifies this investment in transformation through its acquisition of Apera Asset Management, a pan-European private credit firm, and its partnership with Microsoft to build an advanced financial AI platform. Simultaneously, strong balance sheets and mature cash flows enable significant shareholder returns. Aegon Ltd. (AEG) provides a strong example of this, having expanded its share buyback program to EUR 400 million for the second half of 2025. The industry's balance sheets are generally strong and liquid, providing a critical foundation for these strategic initiatives. Companies consistently report significant excess capital and robust liquidity. Ameriprise Financial (AMP), for instance, reported $2.2 billion in excess capital and $2.5 billion in available liquidity in Q3 2025. This financial strength, accumulated through years of strong cash flow generation from asset-based fees, is a crucial strategic asset. It provides the necessary capital to fund acquisitions, invest in transformative technology, and navigate market volatility without financial stress, enabling companies to pursue aggressive growth and shareholder return strategies.