Capacity Analysis for Equity Funds

Posted: 22 May 2019

See all articles by Michael O'Neill

Michael O'Neill

Bond University - Bond Business School

Camille Schmidt

SuperRatings

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Date Written: October 28, 2017

Abstract

This article discusses the definition and determinants of capacity, and outlines a practical approach for analyzing the capacity of equity funds. It is argued that capacity analysis should focus on ‘effective capacity’ for the active component of a portfolio, defined as the assets under management where any additional investments would generate alpha below a minimum threshold at the margin. The approach combines potential drivers into an integrated analysis; and generates insight into the critical factors for the capacity of the strategy being analyzed. The approach is illustrated for a factor-based momentum strategy and an actual equity fund.

Keywords: Capacity, equity mutual funds, alpha, portfolio construction, manager selection, scale

JEL Classification: : G11, G23, G24, G31

Suggested Citation

O'Neill, Michael and Schmidt, Camille and Warren, Geoffrey J., Capacity Analysis for Equity Funds (October 28, 2017). https://doi.org/10.3905/jpm.2018.44.5.036. Available at SSRN: https://ssrn.com/abstract=2923569 or http://dx.doi.org/10.2139/ssrn.2923569

Michael O'Neill

Bond University - Bond Business School ( email )

Gold Coast
Australia

Camille Schmidt

SuperRatings

Australia

Geoffrey J. Warren (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,602
PlumX Metrics