Size no indication of fund return
Adopting a specific strategy for management capacity helps funds of all sizes reach high performance return levels, as good returns are not linked specifically with fund size, according to the Centre for International Finance and Regulation (CIFR).
CIFR research director, Dr Geoff Warren, and Investors Mutual portfolio manager, Dr Michael O'Neill, conducted a study to determine the performance outcomes of funds based on size and capacity, in which it was found that big funds did no better than small funds when it came to yield.
"An optimal scale need not exist for asset owners that run multi-asset portfolios," Warren said.
"Large asset owners should target different asset classes and strategies than those with smaller FUM."
Warren and O'Neill said performance was more strongly linked with solid investment strategy, which should be applied to asset universes and were illiquid, had limited reliance on trading, be liquidity supplying, and have low competition from other investors.
The study said asset owners should focus on return opportunities appropriate to fund size. It was recommended that small funds could build strong results from small-cap equity opportunities that would not be taken up in larger funds, while those larger funds could excel in markets where size and competitive advantage were specifically linked.
Warren said that agency issues related to capacity were common, and asset owners needed to be cautious of not getting embroiled in negotiation regarding capacity. In addition, they should steer away from organisations which aimed to secure value for themselves without regard for investor returns.
AUTHOR
Hope William-Smith
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