The Optimal Pension Fund Size
When it comes to fund management, bigger is generally considered to be better. There is a common assumption that once the fund grows in size, it experiences several benefits which come with increasing economies of scale. The same assumption was also believed to be true of pension funds.
However, empirical studies conducted in the recent past have proved that this is not necessarily the case. Studies show that pension funds become more efficient and productive when they grow up to a certain size. However, once they grow beyond that size, they start experiencing diseconomies of scale. In this article, we will have a closer look at how size affects the performance of pension funds.
Economies of Scale
First, it is important to understand how increasing scale increases the efficiency of pension funds. Some important points which explain this phenomenon have been mentioned below:
Diseconomies of Scale
The concept of economies of scale is well known in investor circles. However, the fact that economies of scale decline beyond a certain point and turn into diseconomies of scale is not very well known. Some of the points which illustrate this fact have been mentioned below:
The conclusion is that pension funds do have an optimal size. When these funds are too small, they face lower productivity and earnings. Also, when they become too large, they face the same fate. It is important for fund managers to keep an eye on the funds productivity and expenses and deploy to ensure that the fund operates at maximum efficiency.

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