The biggest superannuation funds do not have a natural edge over their smaller rivals when it comes investment performance, denting the popular belief that large funds are superior, two recent studies have concluded.

Released last week, Capacity management for institutional asset owners argued what matters is how a super fund makes use of its own inherent size advantages through different investment strategies.

A smaller fund is better placed to effectively deploy capital into small cap stocks to generate outsized returns, an area that would not turn the dial for a mega fund.

Conversely, a larger a super fund is the better placed to take advantage of its size by directly investing in infrastructure.

Centre for International Finance and Regulation research director Geoff Warren, the author of the report, said the study showed there was no “optimal scale” in the investment management space.

“When it comes down to whether big funds can generate higher returns than smaller funds – once you get to a certain minimum size – it really depends on how good you are at managing your portfolio, rather than size per se,” Warren, said.

Warren suggested that required minimum size would likely be between $1 billion and $5 billion, conceding fixed costs had to be considered.

He also acknowledged the research did not touch on areas such as administration, which stand to gain great improvements in efficiency with scale.

“The key thing is how you manage your investments and what you can do at your size. A small fund that recognise it’s small and takes advantage of that, can do quite well,” Warren said.

Tria Investments’ Oliver Hesketh has also been studying the effect of scale on super funds, and delivered some of his findings at the Association of Superannuation Funds of Australia’s annual conference on the Gold Coats earlier this month.

Hesketh agrees with Warren that there is no evidence that scale translates into better investment performance.

However, he caveated that statement with recognition that there were other areas where scale had benefit, such as with advice and digital platforms.

“The ability to be innovative is only available to large funds, but there is always a spot for niche player – they just can’t be small and average.”

In a contrary viewpoint, presented at the Conexus Financial Fiduciary Investors’ Symposium in Healesville, Victoria last week, global pensions expert Keith Ambachtsheer said that it was no until a super fund reached  “about $50 billion” in funds under management that it was poised to really tap economies of scale.

He argued it was at this scale a super fund is well placed to insource its investment managers and directly invest in private markets – all features that help funds deliver in their members’ best interests.

Centre for International Finance and Regulation research director Geoff Warren will deliver an address on the topic of ‘Designing an investment organisation for long-term investing’ to the Investment Magazine Chair Forum in Healesville Victoria, January 29-31, 2017. Register at or contact Emma Brodie via or +61 2 9227 5708. 

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