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The Independent Online
Was it not Dr Schumacher who preached "small is beautiful"? He should see us in the City now. The dash for critical mass is positively breathtaking. And critical mass means size. It seems that these days you have to be a global player in almost everything if you are to count at all.

Fund management is the latest part of the financial services business to embrace the new paradigm. Since Merrills sought to devour our No 1 independent fund management group - Mercury Asset Management - it seems the pace is hotting up. PDFM seems set to be put together with the Swiss Bank Corporation's investment management business, while Gartmore has already fallen to National Westminster Bank. Only Schroders, of the top four pension fund managers, retains its independent status. Lower down the rankings, LGT is up for sale. Even $40bn under management is viewed as not enough to play with the big boys. No wonder that Newton, with a bare pounds 10bn of funds looked after on behalf of clients, is seeking a partner. Big - beautiful? You'd better believe it.

The big four - Mercury, PDFM, Gartmore and Schroders - dominate pension fund management in this country. According to its marketing material, Mercury looks after 50 of the Top 100 British companies, at least in part. Yet all of these businesses have found it difficult to extend beyond these shores. Britain is, in fact, a large and relatively sophisticated pond in which to fish. But even a big local pond is insufficient these days. Moreover, with more and more money moving into indexed portfolios, you need that little extra to persuade investors you provide real added- value.

Size has not been considered as quite so important in the retail market, but this could change too. Unit trusts received a much needed fillip from the PEP market, but the introduction of ISAs will limit the help these tax-efficient vehicles can provide. We may soon see the urge to merge among retail providers.

Now, I would not necessarily preach the size gospel, but you can see what is happening on the global stage. America dominates global financial services. The strength of its own market gives it an advantage that no other nation is likely to match. Europe could come close - hence the flurry of deals on the Continent, but whether investors will get a better deal as a consequence is a very moot point indeed.

In the end, the larger an investment group becomes, the more its investment freedom becomes restricted. I watch developments with interest and hope that a good manager with a clever idea will never find it impossible to set up a new, independent company.

Meantime, Asian contagion rears its head again. Not only does the IMF bale-out for Korea look inadequate, there is no sign its government has grasped the nettle. Moreover, the effects on world trade have yet to be seen.

Next year is unlikely to be as profitable as 1997 which delivered a level of profitability few could have foreseen. The new year may contain just as many surprises for us, though.

Brian Tora is Chairman of the Greig Middleton Investment Strategy Committee

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