Unit costs fall in part because size brings with it the financial capacity to employ a larger and better qualified internal investment team, which leads to a better mix of external and internal management. External management has its place when there is a need for specialised expertise, but it is generally expensive. A

 good internal team rewarded for results at commercially competitive rates can be very cost efficient. A strong internal team also facilitates a better balance than between board oversight and delegation of strategy formulation and implementation to management. Funds with strong long-term records have boards that are truly independent, and Board membership selection criteria based solely on skills needed to meet the fund’s objective.

Larger funds have potential for higher return beyond their cost advantage through better access to strategies that exploit having lots of cash and the patience that comes with a long-term investment horizon. Size matters most in areas like infrastructure (because it is easier to control larger transactions) and private equity investing (because having a strong internal team makes for a more attractive investment partner).

Australia pioneered private investment in infrastructure, but imitation has diminished that initial advantage, and the tyranny of distance means that global opportunities are more expensive to access. International cooperation between super funds can remedy this to some extent, if the investment decision process can be smoothly coordinated. On the operations side, smaller funds have difficulty paying for the largely fixed cost of portfolio management systems, risk systems, and client account management software.

Good systems provide a much better fix on where the money is, what the real exposures are and what can be done to better coordinate component strategies. Better cash management alone can add 0.25 per cent a year to total return. Systems also help in quick identification of implementation errors.

The industry funds recognise that scale is an issue, and that fund consolidation to date has been insufficient. One very human obstacle is board pride in the history of their fund and in their involvement in investment decisions. It may be difficult to accept that the best you can do for members is to merge with other funds, and by implication relinquish your board seat.

If experience elsewhere is a guide, Australia has an urgent need for a few $100 billion funds, or barring that, for a number of funds outsourcing the investment process to a jointly owned organisation that can apply the skills of a strong internal team to making timely decisions for that $100 billion.