Tuesday, September 12, 2006


Does Pension Size Matter?




Pension size can be defined in a variety of ways such as assets under management (AUM), number of participants and so on. For investment analysis purposes, let's use AUM as the determinant of size and then discuss whether pension policies and practices vary across funds.

1. Are large funds more astute?

2. How does the available budget for larger funds impact their ability to hire specialists and engage in arguably more complex analyses?

3. Do governance practices improve or deteriorate as AUM grow?

4. Do plan participants expect more from a larger fund?

5. Can a fund be "too large" and lose the ability to respond quickly to new opportunities?

6. Are fees significantly lower for large funds, and if so, what threshhold constitutes "large"?

7. Do tiny funds struggle with transaction minimums? Can they afford to buy a comprehensive performance analysis technology system?

8. Is there a "too big to fail" doctrine for pensions, similar to what the banking industry has experienced?

9. Is the asset allocation mix materially different for big versus small funds?

10. Are larger funds more or less likely to examine alternative investments, and if so, why?

We could go on but you get the idea. While database vendors frequently categorize plans by assets under management, how many researchers examine the role of size with respect to pension best (worst) practices? What do they conclude?

There are published empirical answers to some of these questions.

We welcome your comments!
posted by Susan Mangiero at 9/12/2006 12:37:00 AM