LONDON/NEW YORK (Reuters) – Turmoil on financial markets is expected to deepen layoffs and accelerate acquisitions in the fund management industry.

BlackRock, the world’s largest money manager, and industry No. 3 State Street announced job cuts this month after the worst year for many stock indexes since the financial crisis and losses across most other financial assets. Hedge funds AQR Capital and Balyasny Capital took similar steps.

“It will be a common industry trend,” said Kyle Sanders, an analyst with financial services firm Edward Jones.

“When markets go down, the first place asset managers look to cut costs is with headcount.” Until last year, rising markets – buoyed by easy money from central banks – had helped keep fund managers comfortably afloat, with many enjoying profit margins of 20-40 percent, even though fees have fallen.

For an interactive version of the below graphic, click here tmsnrt.rs/2RUbOqo.

But the prospect of tighter monetary policy and concerns around economic growth saw $168.1 billion drained from mutual funds globally in the final quarter of 2018, data from Lipper at Refinitiv showed.

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Early January saw some money return to equity markets but it is too early to say if that will be sustained. In the meantime, without market performance to bolster their assets under management, investment managers’ revenues, largely based on charging a fee on those assets, will suffer. BlackRock reported a smaller-than-expected fourth quarter profit and analysts expect fourth-quarter earnings for S&P 500 asset managers and custody banks to drop 0.8 percent on average. At the beginning of October, they had forecast growth of 10.3 percent, Refinitiv data show.

“With revenue-growth expectations dialled back, it’s not surprising that firms like AQR and BlackRock are reprioritising,” Neal Epstein, Vice President at Moody’s Investors Service, said.

BlackRock, State Street and Balyasny Capital declined to comment. Claudia Gray, a spokeswoman for AQR Capital, said the company had experienced record growth in staffing over the past three years.

“Recent small reductions in headcount reflect the need to balance our workforce growth with the current needs of our business,” Gray said in a statement.

CONSOLIDATION DRIVE

If market volatility prompts more investors to pull their money it will compound existing pressure on asset managers from increased competition, particularly from cheaper index-tracking products that have driven down fees. Tougher regulations and investments in technology and data have also inflated costs with compliance managers and data specialists continuing to be hired.

Despite plans to cut 3 percent of its global workforce, BlackRock has said its staffing levels would be 4 percent higher this year as it invests in other areas, including technology.

Elsewhere, the cost-cutting pressure is particularly acute for smaller asset managers which lack the heft to compete on price against behemoths such as BlackRock, which has nearly $6 trillion in assets under management.

Smaller companies will have to go further to shore up their bottom line and, in addition to firing staff, may look to join forces with larger rivals to help share mid- and back-office costs, accelerating a trend begun over the last few years.

A 10 percent fall in assets under management could see profit margins slide by 700-1,000 basis points, which would “absolutely drive consolidation”, UBS analyst Mike Werner said.

A total of 915 deals with a combined value of $50 billion were sealed last year, two thirds more valuable than in 2017, Refinitiv data showed, including Invesco’s $5.7 billion acquisition of OppenheimerFunds.

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That trend is expected to accelerate, particularly in Europe, where listed asset managers’ share prices have been hit hard, and banks and insurers, which held onto their asset management arms during the financial crisis, may be more tempted to sell.

“As the value… is declining, potential sellers may be more inclined to close a deal, leading to increased consolidation,” said Christian Edelmann, head of global banking and wealth & asset management at consultants Oliver Wyman.

Over 2018, the Thomson Reuters global fund managers index fell 27 percent with Standard Life Aberdeen down 40 percent, France’s Amundi down 35 percent and Italy’s Anima down 39 percent.

By comparison, the MSCI World index fell 10.4 percent.