Global assets under management rebounded last year as markets rallied, but investor jitters about future returns will force managers to review the way they do business, according to a report released on Tuesday.

Buoyed by last year's strong market gains, professionally managed assets rose 12 percent to $52.6 trillion last year, Boston Consulting Group wrote in its eighth annual asset management industry survey. In 2008 assets tumbled 17 percent.

Asia posted the largest absolute gain in 2009 with an increase of 25 percent. Assets grew 11 percent in North America.

Still, it was tough for asset managers to make money, the consultants wrote, noting that net revenue dropped 11 percent while operating margins declined 19 percent.

The industry has been faring much better in terms of the markets coming back and assets growing again, said Brent Beardsley, a Boston Consulting Group (BCG) partner who helped write the report. But it is also far from seeing that everything is back to being wonderful.

The BCG consultants expect profit margins to rebound to as much as 35 percent of net revenue this year, up from 31 percent last year, but they said it may be too soon to sound the all clear.

For starters, the sharp market drop in May, which left some of the industry's savviest managers with heavy losses, illustrates how tough it will be to manage stock and bond funds as the recovery remains sluggish. The outlook for growth in both equities and fixed-income investments remains foggy, the consultants wrote.

Investors' preference to stay on the sidelines was evident last year when new inflows of funds were so small that they contributed only 1 percent to the overall gain in assets under management.

This year, investors' taste for less expensive so-called passive portfolios is evident, putting what consultants call a squeeze on funds that rely on active stock picking.

And when investors do return to the markets, they will come armed with a new self-confidence, demanding more details about how their money is being managed and how much risk a manager will take.

Only a few years ago, a number of short-term funds that promised investors safe investments stocked up on risky securities, which led to double-digit losses during the financial crisis.

People are less trusting these days, Beardsley said.

To keep their clients, managers will have to spend more time and money on improving risk management and giving investors more data on what is happening with their money, the consultants wrote.

In the new era of playing it safe, investors are also showing a fresh taste for putting money with the biggest and best known companies. The consultants said the top 20 percent of asset managers, ranked by net sales, pulled in 88 percent of all net sales last year.

Data from Financial Research Corp show that in April, for example, household names Vanguard Group, American Funds and Fidelity pulled in the largest amounts of money.

Penny-pinching investors are showing an increasing appetite for passive portfolios, including hugely popular ETFs, or exchange traded funds, which offer daily liquidity. Especially here, the consultants see room for growth.

But the BCG consultants also warned that fund companies must guard against trying to be all things to all customers, and should build on what they do best.

After years of heavy cost-cutting to survive the financial crisis, fund firms now need to spend more judiciously, they said, adding that firms should focus on what they do best given their particular strengths and weaknesses.

This might mean that some firms consider merging their businesses. Only a year ago, BlackRock Inc bought BGI, and more moves might be in the offing.

Potential good fits should therefore always be part of senior management's thinking regarding growth options, the consultants wrote.

(Reporting by Svea Herbst-Bayliss; editing by John Wallace)

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