The myth of economies of scale: bigger is not necessarily better for super funds

The Conversation, superannuation funds, economies of scaleIt is received wisdom in the Australian superannuation industry that bigger is better. The theory goes that funds with more assets under management will benefit from economies of scale, because the costs of running a superannuation fund are largely fixed and do not change much, whether you are managing assets of A$500 million or $50 billion.

This means that funds which have more assets under management will spend proportionally less on administration and overheads. This will allow them to make more competitive returns and supposedly give them an edge in the marketplace. The endpoint of this reasoning is that a market’s conditions will be a “critical threshold” when it comes to size. Read more...