On Size Effects in Separate Accounts
40 Pages Posted: 18 Mar 2017 Last revised: 4 Aug 2017
Date Written: August 3, 2017
We are the first to investigate specific size effects in separate accounts (SAs). This is important because SAs represent a major investment vehicle for institutional investors. More interestingly, they have an additional structural layer compared to mutual funds for which size effects have been intensively studied. This additional layer – separate, individualized accounts of single investors, which increase overall management complexity – significantly diminishes performance. These structural diseconomies economically outweigh the liquidity and market impact cost related negative effects known from mutual funds. However, comparing SAs and mutual funds, we find that SAs outperform mutual funds on average regardless of structural diseconomies of scale.
Keywords: Institutional investing, separate accounts, performance, diseconomies of scale, flows
JEL Classification: G11, G12
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