Effect of fund size on the performance of Australian superannuation funds

Abstract

This study examines the relationship between fund size and performance for two major superannuation industry sectors in Australia: retail and not-for-profit, using a unique but confidential database. Results suggest that members benefit from being invested in larger superannuation funds for three reasons: (i) larger not-for-profit funds provide diversification benefits of investing in more asset classes including unlisted property and private equity, (ii) larger funds in both sectors avoid the scale diseconomies in investment returns documented in studies of equity mutual funds and (iii) larger funds make substantial savings by spreading fixed operating costs (such as IT infrastructure) over a larger asset base. © 2015 AFAANZ Accounting and Finance 56 (2016) 695-725 © 2015 AFAANZ © 2015 AFAANZ © 2015 AFAANZ J. R. Cummings/Accounting and Finance 56 (2016) 695-725 699

Australian superannuation (pension) fund product ratings and performance: A guide for fund managers

“…Coleman et al (2003) find a positive relation between return on assets and SF size and a negative relation between expense ratios and SF size. Cummings (2012) argues that larger not-for-profit SFs with respect to funds under management benefit from lower investment expense ratios as larger SFs are able to spread fixed costs associated with administration and information technology infrastructure over a larger asset base. Nevertheless Blake et al (2002) report an inverse relation between UK fund performance and fund size in equities.…”

Life-cycle patterns in the design and adoption of default funds in DC pension plans

“…20 The data are constructed from questionnaires these pension plans are obligated to submit to APRA on an annual basis under the Financial Sector (Collection of Data) Act 2001. The number of pension plans in the data steadily declines from 1,245 plans in 2004 to 298 plans in 2012 as a result of plan mergers, which are usually initiated by the trustees of smaller corporate pension plans who decide to transfer members' accounts to larger industry and retail plans (Cummings, 2012). 21 The raw data include 4,870 planyear observations.…”

Pension Fund Investment in Infrastructure

“…In contrast, these factors do not seem to be at work with retail funds that are often an aggregation of individual member choices. Cummings (2012) finds that fund size has a positive impact on the performance of not-for -profit superannuation funds (again, not for retail funds), both in gross returns and in expenses. Larger funds realise substantial operational cost savings and are able to negotiate better fees with external managers.…”