Keefe, Bruyette & Woods predicts slow growth in the United States in 2011.

On Monday the firm released its 2011 Asset Managers Outlook "Compilation": From Capital Accumulation to Capital Deployment, which predicts that capital redeployment will focus on increased dividends, share repurchases, and mergers and acquisitions. Yet lending and growth opportunities for financials will be limited by the slow U.S. economic recovery due to lower consumer demand. In fact, KBW forecasts that GDP will grow slightly less than 2% in 2011, the unemployment rate will fall to 9.1% by the end of the year, and Americans will continue saving at high rates into 2012.

Meanwhile, the firm anticipates the Federal Reserve will maintain low interest rates in 2011, which will stimulate increased bank reserves and increased risk taking. With interest rates so low, KBW predicts domestic equity fund flows should begin to improve. The firm expects fixed income flows to remain on the up and up, although lower than their 2010 levels. By the spring the Fed’s policies will bear some fruit, says KBW, with capital markets activity increasing as well as demand for troubled assets.

Return on equity should improve, KBW says, as large financial institutions deploy capital and look for opportunities for global regulatory arbitrage. The strongest area for growth in 2011 will be capital markets, while the weakest will be bank loan balances.

At the same time regulations will pressure the industry with the implementation of the Dodd-Frank bill.

The good news is that better equity flows and potential for additional operating leverage should mean robust growth for asset managers in 2011. KBW thinks alternative managers may be particularly well positioned for continued organic growth.