This year's shrinkage in assets under management in U.S. funds could reach 29%, according to Merrill Lynch & Co.

Analyst Cynthia Mayer wrote Thursday that asset managers should cut expenses next year. Assets under management will prove to have fallen 23% in the fourth quarter, she said, up from her previous estimate of a 10% decline.

Asset managers have seen a sharp decline in fee-based income as managed assets shrank dramatically during the financial crisis. Many U.S. fund companies, including Fidelity Investments, Legg Mason Inc., and Janus Capital Group Inc. have cut jobs.

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