The bear market is to blame for the scandals that have hit the U.S. mutual fund industry, the chairman of Boston-based mutual fund manager MFS Investment Management, said Monday.

Speaking to the Investment Dealers Association’s annual conference in Mont Tremblant, Que. Monday, Robert Pozen said that one of the key triggers for the public airing of these scandals is that mutual fund investors lost money in the market over the past couple of years. Without that condition, he suggests that the Eliot Spitzers of the world wouldn’t have been so keen to uncover these cases.

One of the other major keys to the scandal was the heavy marketing of mutual funds. With the focus on bringing assets in the door by any means necessary, it became easy for companies to get caught up in some of these dodgy arrangements, Pozen suggested. Other factors were the huge growth in the industry in the 1990s, which brought many unsophisticated investors into the business, and many different products and pricing structures; the ease of redemptions; and, the rise of aggressive hedge funds who were eager to exploit any arbitrage opportunity; also helped to create the right conditions for these scandals to emerge.

Pozen suggested that many of same conditions hold true in Canada too. He predicted strong growth for hedge funds in Canada, particularly focused on high-end clients. He said this, along with the growth in exchange-traded funds and separately managed accounts, are key threats to mutual fund industry growth.

As a result, scale will become an increasingly important advantage for fund firms, and this will spell ever more consolidation. Small firms will be able to survive by focusing on specific niches in the market, or outsourcing much of their work, but mid-market firms will really be squeezed, Pozen said.

One of the key challenges for fund firms will be generating quality investment research, he said. Pozen predicted that sell-side firms are likely to get stingier with their research, as dealers cut back their coverage and demand to be paid for the stuff they do produce. And, he said, that one of the consequences of regulation fair disclosure is that research’s value is becoming based on the depth of the analysis, rather than the speed with which information is transmitted (since issuers are required to disclose all material information on an equal basis to all investors). This means fund firms need strong in-house research capabilities.

He predicted that the availability of research will come under pressure as soft-dollar arrangements fall under increasing regulatory scrutiny. He said that MFS is taking a hard line on soft dollars, but that it needs the SEC to back it up by forcing a level playing field on all firms.

Other regulatory reforms are inevitable from the SEC, he said. Some of the reforms being adopted by the SEC in the U.S. will inevitably filter over the border in Canada, too, he added.

In the U.S., he also sees the scandals leading to other structural changes in the business, including more personalized disclosure for fund clients, showing them what they are personally paying for their funds.

The winners in all of this will be asset-management firms with scale, strong research and high ethical standards, he argued.