What keeps your fund manager up at night?

Want to know what keeps mutual-fund executives awake at night? The one thought that, if it pops into their head, is likely to keep them tossing and turning until dawn?

The fear that they're losing an entire generation of investors.

It's a fear that's borne out of an uncomfortable reality that I wrote about a few months ago -- that millions of younger investors have been investing in stocks for years and have little to show for their faith other than gut-wrenching volatility and flat (or worse) returns. As a result, a growing proportion of investors under the age of 40 is deciding that owning stocks just isn't worth the headaches that result.

In 2008, according to the ICI, just 14 percent of all investors under the age of 35 indicated that they were either unwilling to take any investment risk or willing to take only below-average risk for below-average gains. At the other end of the spectrum, 37 percent of investors in this age group were willing to assume at least above-average risk in pursuit of performance.

Flash forward just three years to 2011, and the situation is quite different. The share of investors in this age group who are the most risk averse has nearly doubled to 27 percent, while the share of those who were the most risk tolerant has fallen to 31 percent. In other words, today's young investors are nearly as likely to favor extremely low-risk investments as they are likely to favor the riskiest options.

This stands in stark contrast to the risk appetite of their older peers. Thirty-eight percent of investors aged 35 to 49 are currently willing to assume at least above-average risk, while only 15 percent are highly risk averse. Even among investors aged 50 to 64, only 21 percent fall into the most risk averse categories.

As you might imagine, this trend toward risk aversion among young investors -- combined with an aging baby-boom population that is slowly exiting the stock market -- has mutual fund executives nervously eyeing their bottom lines. Stock funds, of course, typically offer much higher profit margins than balanced or bond funds, and a fundamental shift in the risk tolerance of an entire generation would result in an enormous blow to the profitability of nearly every firm in the industry.

The canary in the coal mine, as it were, for this particular phenomenon might just be fund giant Capital Group, which runs the American Funds. As I wrote last year, American Funds roared through the first half of the past decade, as strong performance and a sound reputation had cash pouring through their doors.

The financial crisis of 2008 soundly reversed that trend, and they have yet to stem the tide of cash outflow. In fact, according to figures released last week by Morningstar, American Funds suffered a stunning $81 billion worth of cash outflow in 2011. Their Growth Fund of America alone suffered $33 billion in redemptions -- more than any other firm had for the entire year.

Optimists will point out that these problems might be nothing that a good old-fashioned bull market couldn't cure. Perhaps they're right. But waiting for a bull market to kick-start a return to the good old days doesn't seem like much a business plan, which is why so many fund executives are starting to try to figure out how to make their way in what might be a brave new world.