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The ratings agency also said parts of the industry will head toward a multi-boutique business model in a bid to cope with increasing competition from specialist mangers and a worsening global economic environment.

Amit Mathur, senior director in Fitch’s fund and asset management ratings group, said: "With the markets not doing as well as they could be, there are falling revenues. Falling revenues in a fragmented market are begging for consolidation and cost control.

"The UK industry is going to see a lot of consolidation. Cost control can also be achieved by outsourcing."

He said the European market, which has around 49,000 funds, is much more fragmented than the US market, which has 10,000-15,000 funds.

Mr Mathur said that, despite a general trend to outsourcing, not everything is being outsourced,. However, he added that small asset managers are taking responsibility for custody, operations and administration.

"They want to provide a complete solution under one roof," he said. "Large managers are moving up the value chain by building more robust IT platforms and open architecture systems."

He said the industry is seeing the emergence of multi-boutique structures, where asset managers are taking advantage of independence in decision-making and economies of scale.

The last year has seen Pearl Group acquire Resolution, including Resolution Asset Management. Iimia Miton Optimal also merged with Midas Capital Partners, and a majority stake in F&C Asset Management came up for sale.

In the report published earlier this month, Fitch also said alternative investments are likely to grow in popularity.

Even though traditional investment products are the mainstay of the industry, the growth of alternative investments - underpinned by interest in total returns, rather than benchmark returns - has been significant, the firm said.