The value of assets under management (AuM) at UK-based firms fell by 4.5% year on year, according to Willis Tower Watson's survey of the world's top 500 managers.
The research, which takes into account data up to the end of 2016, shows 42 UK-based firms now manage $6.3trn (£4.8trn) compared to $6.6trn in last year's study.
This marks the second consecutive year the amount managed by UK managers has declined.
Two themes present in last year's survey - the increase in passive management and the subdued expansion of UK asset managers relative to others - continued.
It comes as AuM of the world's top 500 managers surpassed $80trn for the first time in 2016, representing a rise of 5.8% on the previous year.
Assets among North American managers increased by 7.7% over the period and now stands at $47trn, while assets managed by European managers, including the UK, increased by 2.8% to $26trn.
For all 500 firms tracked in the survey, their assets received from the rest of the world saw the greatest year-on-year growth in 2016 with an increase of 27.3%, while assets received from the US grew by 8.1%.
However, all managers reduced their exposure to UK assets from $4trn in 2015 to $3.8trn in 2016, a decline of 7.1%.
Although the majority of total assets, 78.4%, are still managed actively, the share declined from 79.7% from end of last year as passive management continued to make inroads.
Passive assets experienced a year-on-year AuM growth of 5.9% in 2016 while active assets decreased by 2.3% in the same period.
Willis Towers Watson global head of manager research Luba Nikulina explained the reasons behind the increasing use of passive strategies.
"While passive assets remain significantly smaller than actively managed assets, the proportion of passively managed assets has grown from 16.5% to 21.6% over the last five years alone.
"We expect that this trend will continue to put downward pressure on traditional fee structures, particularly amongst active managers seeking to remain competitive and to maximise value to investors."
BlackRock retained its position at the top of the manager rankings for the eighth consecutive year with $5.1trn AuM.
Legal & General Group was the highest ranked UK-based manager at 16 with $1.1trn AuM.
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