* Funds with over $180 bln in assets lag benchmark gains

* M&G Recovery, Schroder UK Opportunities funds among losers

* 2014 results mirror weaker long-term performance trend

* May push more investors into passive mutual funds

By Nishant Kumar

LONDON, Jan 4 (Reuters) - Nearly half of the mutual funds picking British stocks fell short of the gains in the broader share market in 2014, raising the prospect they could lose yet more market share to cheaper index fund rivals in 2015.

That marked the worst underperformance by these funds since 2011 and a major reversal of fortunes for the fund managers in Europe's biggest asset management hub. About 85 percent of the funds had exceeded gains in UK's main FTSE 100 Index in 2013, data from Thomson Reuters Lipper showed.

Funds investing across Europe did even worse, with nearly 70 percent of them failing to beat last year's 6.8 percent gain in the MSCI Europe NR EUR Index, the most popular benchmark for Europe-focused stock funds, the data showed.

UK-focused equity funds managed about $400 billion in assets at the end of September, the most by any other country-focused funds in Europe and only about $83 billion less than funds investing across the entire region, Lipper data showed.

Weak market returns and a post-crisis regulatory focus on poor business practice across the financial services industry have seen rules changed to make fund fees more transparent and more managers called to account for poor performance.

And the data for 2014 suggests more tense conversations are likely in the coming weeks as investors sit down with fund managers ahead of their annual rejig of investment portfolios.

Britain's benchmark FTSE 100 index rose 0.7 percent last year, assuming dividends were reinvested. The broader FTSE All Share index, meanwhile, advanced 1.2 percent.

While not a particularly challenging hurdle, funds with combined assets of more than $180 billion failed to beat it, data from fund tracker Thomson Reuters Lipper showed.

Among the larger funds, underperformers included M&G Recovery, which fell 9.6 percent, Schroder UK Opportunities, down 8.6 percent, Scottish Widows UK Growth, down 2.6 percent and Fidelity Special Situations, down 1.7 percent.

The setback will force investors to focus to the value of active management and on fees that are sometimes more than 10 times those of a passive index tracking or exchange-traded fund.

"This is the total opposite of 2013 when active UK funds posted large outperformance of the FTSE All Share," said Laith Khalaf, a senior analyst at Hargreaves Lansdown.