"We'll see the number of [mutual fund] distribution houses cut in half over the next few years."

Don Putnam of asset management M&A shop Grail Partners shared that prediction Wednesday morning on a panel with John Hancock Funds chief Keith Hartstein, at the MutualFundWire 2011 Influencers' Summit: See 2020 at the Mandarin Oriental in Boston.

Both Hartstein and Putnam predict the continued shift towards centralized distribution and marketing organizations with multiple, best-in-class, third-party boutiques as subadvisors.(Hancock uses just such a sub-advised model for its own funds.) Putnam warned that the completely proprietary model "leads to loyalty to your co-workers over and above loyalty to your clients."

"We were building up a distribution franchise ... To feed the machine, if you will, we needed product," Hartstein told conferees, adding that he looks for several things in a potential adoption and subadvisory target: "people, process, performance, repeatibility and sustainability."

Putnam agreed, noting that building a distribution complex as a young fund firm is nigh impossible.

"You cannot get from here to there in the distribution game," Putnam told conferees. "$100 million of earnings is not enough earnings to create global distribution at scale."

Putnam said he's skeptical about the idea of many foreign companies buying into the U.S. asset management market any more.

"Most of the global players are banks, which are the most incompetent owners of money managers, bar none. The ones that aren't banks are brokers, which are the second-worst owners of money management firms," Putnam said. "The industry's not globalizing, it's Americanizing across the globe ... the American style of finance is our most powerful export."

In fact, Putnam favors independent asset managers, or asset managers owned by insurance companies, like Hancock parent Manulife. Perhaps not surprisingly, Hartstein agreed about the strength of insurance companies as asset management parents.

"They understand distribution, for one thing, and they understand the value of distribution," Hartstein said.

Blockbuster deals will be few and far between, at least for now, Putnam added.

"We are not going to see transactions that fulfill the fevered dreams of the bank owners of these businesses," Putnam said. "We will have highly motivated sellers of truly crappy product, and we will have very confused and strategically disoriented buyers ... It's really hard to look your board in the eye and say 'I'm thinking of a couple of billion dollars in equity. What do you think?'"

Yet the duo also agree that the industry needs some shaking up. Putnam opined that "the big collision that hasn't really occurred is the collision with the internt," and Hartstein wondered if "the tipping point will be when Google launches mutual funds."

"I think we're going to see Google do a Vulcan mindmeld with Morningstar," Putnam quipped. 

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