SEC-Registered Investment Fund Report

As we review the September 2024 statistics for the SEC-Registered Investment Fund Report, important year-over-year developments emerge.
The report data highlights ongoing trends, shifting dynamics, and a troubling reality: small fund managers face growing barriers to survival.
This post explores these themes and calls for renewed advocacy for smaller investment firms.

Ongoing Trends for SEC-Registered Investment Fund Companies from 2023 to 2024

Several key trends from 2023 have not only persisted but strengthened:

• Dominance of ETFs
  ETF growth accelerated, especially in US Equity and Taxable Bond products. Investors continue to favor low-cost, index-tracking solutions.
• Asset Concentration
  The largest investment fund families, such as Vanguard, BlackRrock/iShares, and Fidelity, further solidified their dominance. Today, the top 2% of funds manage over 56% of industry assets, and the top 10% control more than 81%.
• Mutual Fund Challenges
  While growing in absolute assets, traditional mutual funds are losing ground relative to ETFs. Active management, in particular, continues to face net outflows.
• Popularity of Core Asset Classes
  US Equity and Taxable Bond categories remain investor favorites.

The resilience of these patterns with the registered investment fund industry underscores the deep structural changes reshaping asset management.

Changing Trends and Emerging Risks for Registered Investment Funds

New developments in 2024 highlight intensifying pressures for small registered funds, including mutual funds, ETFs, and interval funds:

• Liquidity Risk Concerns
  Interval and closed-end funds grew modestly, but concerns about redemption pressures and liquidity risk have deepened.
• Further Marginalization of Small Asset Managers
  Smaller fund families have lost even more market share. Regulatory burdens, distribution bottlenecks, and investor consolidation into mega-firms have made it harder than ever for small players to thrive.
• Overconcentration in US Equities
  The increasing concentration in US markets raises systemic risks should the US experience an economic downturn.
• Heightened Regulatory Complexity
  Full compliance with new rules, such as Rule 18f-4 (derivatives risk management) and Rule 12d1-4 (fund-of-funds arrangements), demands substantial legal and operational resources that disproportionately burden small firms.

How Regulation and Distribution Concentration Are Killing Small Investment Funds

Small and emerging managers are facing a perfect storm:

• Impact of Regulatory Overload on Small Investment Funds
  While well-intentioned, regulations such as Rules 2a-5 and 18f-4, and the SEC’s expanding compliance expectations require sophisticated infrastructures that are cost-prohibitive for boutique firms.
• Distribution Monopoly
  The fund distribution landscape is increasingly dominated by a handful of major platforms and intermediaries. Wirehouses, large RIA networks, and custodial platforms increasingly prefer to work only with large, well-established fund families. Shelf space is expensive and fiercely competitive.
• Barrier to Innovation
  These factors create a high wall to entry, stifling innovation, diversity, and the entrepreneurial spirit that once defined much of the investment management industry.

Additionally, private equity investment drives rapid consolidation among broker-dealers, RIAs, and fund service providers. PE firms demand aggressive growth from their portfolio companies, pushing service providers to focus exclusively on the largest market segments where scale and revenue generation are maximized. However, this is a zero-sum game: growth often requires taking away business from others, and with fewer new market entrants, the opportunities for "takeaway growth" are shrinking. This dynamic further marginalizes smaller managers, cutting them off from critical fund distribution and service networks.

Compounding this challenge, many existing RIAs are actively seeking succession plans with a generational shift underway. For most, the only viable option is to sell to large, private equity-backed buyers. This wave of consolidation threatens to further entrench the dominance of the largest players and make independent succession planning for small, entrepreneurial firms increasingly rare.

In effect, regulatory complexity combined with distribution consolidation makes it nearly impossible for the "little guy" to survive, let alone compete.

Why Supporting Small Asset Managers Matters

Small and emerging asset managers are critical to a healthy investment ecosystem:

• They offer innovation in products, strategies, and client service.
• They bring diverse perspectives and niche expertise.

While small asset managers may not achieve the economies of scale needed to offer the lowest fees, they are essential in ensuring a vibrant, competitive, and innovative asset management industry.

When small asset managers are crowded out, investors lose choice, creativity suffers, and the industry becomes less dynamic and less resilient. Fund distribution becomes concentrated in only a few fund families that are concentrated in financial hubs such as New York, Boston, and Chicago.

Strategic Recommendations for Small Asset Managers

In this challenging environment, smaller fund managers must:

• Emphasize Differentiation and Alternative Strategies
  Focus on niche investment markets, specialized investment expertise, and bespoke solutions. Alternative strategies, especially those that have limited scalability and, therefore, might be ignored by large asset managers, are ideal products for smaller asset managers who may have unique expertise in complex or illiquid strategies. 
• Strengthen Investor Relationships
  Build deep, direct connections with investors who value boutique investment fund offerings and are looking for uncorrelated investment strategies, particularly in alternative asset classes. These investors often focus on alternative assets and private markets to obtain alpha, higher yields and diversification. Their ability to invest in illiquid or longer-term strategies can make their assets stickier and give small asset managers time to deliver outstanding performance. 
• Advocate for Fairer Rules for Small Fund Managers
  Work collectively through industry groups such as the Investment Company Institute and Investment Advisers Association to push for scalable regulatory frameworks that don't disproportionately harm smaller investment firms.
• Innovate with Agility
  Leverage technology, alternative fund structures, and flexible business models to stay competitive. Take advantage of developments such as the ETF share class exemptive orders to stay competitive with larger shops.

Final Thoughts

The September 2024 fund statistics report offers a sobering view of the registered fund industry's concentration and a clarion call for change.

Supporting small and emerging investment fund managers is not just about protecting underdogs—it's about preserving the entire investment management ecosystem's vitality, innovation, and competitiveness.

The SEC and policymakers must acknowledge the mounting barriers they are unintentionally creating or permitting by allowing a few firms to dominate the distribution of fund assets. The SEC Small Business Capital Formation Advisory Committee (the "Small Business Committee") is aware of some of these issues, including challenges faced by emerging fund managers, which was a topic of discussion at its February 25, 2025, meeting. For example, many institutional investors typically avoid first-time fund managers, viewing them as too risky. As a result, they're forced to rely more on high-net-worth individuals and family offices to raise assets. This applies to mutual funds, ETFs, and private funds.

Investors and industry participants alike should rally to ensure that entrepreneurial managers continue to have a seat at the table. The Small Business Committee is aware that assets are concentrated in larger, established funds and managers. Some of this is due to the operational, legal, compliance, accounting, and fund administration burdens that stretch small asset managers to their limits.

Without proactive support, we risk an asset management industry that is less innovative, less diverse, and ultimately, less beneficial to investors. The SEC should evaluate how its rules weigh on small asset managers and adjust regulatory requirements to permit diversity, innovation, and a more competitive landscape.

We at Fintech Law stand with small registered fund managers. Their fight is the industry's fight.