Active equity managers need to rethink their business model, as outflows continue to wreak havoc across the industry.

Unlike in previous periods, this time the outflows from equity managers are not cyclical, Tria Investment Partners managing partner Andrew Baker said.

"Historically, there has been a strong correlation between index performance and net inflows, but since 2009, this has broken down," Baker said.

"Flows are not responding to a market, which seems to have at least found a floor."

As a result, a number of asset managers have closed their active Australian equities businesses, including GMO and Ankura Capital, while BlackRock closed its fundamental equities business, transferring just short of $1 billion in funds to its quantitative strategies.

This has not always been the result of poor performance, Baker said.

"Excellent performance has not insulated managers," he said.

"Perpetual, for example, has had exceptional investment performance for the past three years and yet is suffering deep outflows."

Baker pointed to a number of structural changes in the market that lie at the heart of the problem.

In the retail sector, the outflows have partly been caused by drawing investors away from core equity funds to direct equity portfolios - a move enabled by improving wealth management technology and new dealer group equity offerings.

In the institutional sector, investments have been held back by the scale effect which works to cap the amounts that large super funds can allocate in active mandates to domestic markets like Australian equities.

"A $100 billion fund might not be able to allocate any more than a $30 billion fund," Baker said.

Both segments have been impacted by the shift out of active investments and into passive funds.

"The pressure to cut portfolio investment costs is as important a driver for the financial planner as it is for institutions," he said.

But the continuous outflows are also partly caused by a lack of investment in product development and marketing by asset managers, Baker said.

"Let's be honest - in many asset management firms, the level of investment in marketing would be seen as a joke by a major FMCG (fast moving consumer goods) firm," he said.

"We are seeing the consequences of that lack of investment."

Some asset managers are better positioned to retain funds than others.

Managers that have investment process that are hard to replicate have an advantage over more common strategies.

"The halcyon days of the middle-of-the road active large-cap fund may be over," Baker said.

Niche products are also more suited to active management and can often charge higher fees.

Asset managers will also have to look at new markets, such as pension portfolios.