Have scale effects on cost margins of pension fund investment portfolios disappeared?

29 Pages Posted: 4 May 2021

See all articles by Jacob Antoon Bikker

Jacob Antoon Bikker

De Nederlandsche Bank; Utrecht University - School of Economics

Jeroen Meringa

De Nederlandsche Bank

Date Written: April 22, 2021

Abstract


Investment costs of pension funds are crucial for their returns. Consolidation in the pension fund market proceeds continuously, often with cost savings as the main argument. Unused economies of scale in the pension fund investment costs, however, have declined over the years to values close to zero, except for the very small pension funds. This paper investigates investment economies of scale in the Netherlands and pays special attention to the non-linear relationship between investment costs and sizes of pension funds. Furthermore, investment cost margins are disaggregated into three cost types and into six asset categories. Performance fees are in particular paid for complex asset categories held by large pension funds. They reduce the traditional scale economy results for the entire portfolio. Cost savings by consolidation are still possible but are very limited.

Keywords: Scale economies, cost elasticity, pension funds, investment costs, efficiency, non-linear cost-size relationship

JEL Classification: G23, L0

Suggested Citation

Bikker, Jacob Antoon and Meringa, Jeroen, Have scale effects on cost margins of pension fund investment portfolios disappeared? (April 22, 2021). De Nederlandsche Bank Working Paper No. 710, Available at SSRN: https://ssrn.com/abstract=3836451 or http://dx.doi.org/10.2139/ssrn.3836451

Jacob Antoon Bikker (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Jeroen Meringa

De Nederlandsche Bank ( email )

Netherlands

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