Scale Economies in Pension Fund Investments: A Dissection of Investment Costs Across Asset Classes

54 Pages Posted: 5 Jun 2015

See all articles by Dirk Broeders

Dirk Broeders

De Nederlandsche Bank; Maastricht University

Arco van Oord

De Nederlandsche Bank

David R. Rijsbergen

De Nederlandsche Bank

Date Written: June 3, 2015

Abstract

Using a unique dataset of 225 Dutch occupational pension funds with a total of 928 billion euro of assets under management, we provide a comprehensive analysis of the relation between investment costs and pension fund size. Our dataset is free from self-reporting biases and decomposes investment costs for 6 asset classes in management costs and performance fees. A pension fund that has 10 times more assets under management, has on average 7.67 basis points lower annual investment costs. These economies of scale are solely driven by management costs. Robustness checks show that this key finding does not vary over different pension fund sizes. Economies of scale do, however, differ per asset class. We find significant economies of scale in fixed income, equity and commodity portfolios, but not in real estate investments, private equity and hedge funds. We also find that large pension funds pay significantly higher performance fees for equity, private equity and hedge fund investments.

Keywords: pension funds, asset management, management costs, performance fees

JEL Classification: G11, G12, G23

Suggested Citation

Broeders, Dirk and van Oord, Arco J.A. and Rijsbergen, David R., Scale Economies in Pension Fund Investments: A Dissection of Investment Costs Across Asset Classes (June 3, 2015). De Nederlandsche Bank Working Paper No. 474, Available at SSRN: https://ssrn.com/abstract=2613918 or http://dx.doi.org/10.2139/ssrn.2613918

Dirk Broeders (Contact Author)

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

HOME PAGE: http://www.dnb.nl/en/research/personal-pages/dirk-broeders/

Maastricht University ( email )

P.O. Box 616
Maastricht, Limburg 6200MD
Netherlands

HOME PAGE: http://www.maastrichtuniversity.nl/about-um/faculties/school-business-and-economics

Arco J.A. Van Oord

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

David R. Rijsbergen

De Nederlandsche Bank ( email )

Westeinde 1
Amsterdam, 1017 ZN
Netherlands

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