CEM Benchmarking Report Quantifies Benefits of Scale for Pension Funds

A Case for Scale reveals larger institutional investors achieve higher returns with lower risk

TORONTO--(BUSINESS WIRE)--A new report released today by CEM Benchmarking (CEM), one of the world’s most authoritative pension fund researchers, reveals how scale can lead to better investment results for pension funds.

CEM’s report, entitled A Case for Scale, draws from their database of more than 1,100 funds representing over $11 trillion in assets under management to demonstrate how large institutional investors add incremental value over smaller funds. The report quantifies the benefits of scale for pension funds seeking higher returns while mitigating risk and seeking cost efficiency.

“Pension funds today are navigating a challenging and uncertain environment, driven by factors like the ongoing impact of COVID-19, rising inflation, market volatility, geopolitical uncertainty and the adoption of ESG,” said CEM CEO Rashay Jethalal. “They are looking for strategies that generate stronger net returns while keeping uncertainty in check. Our report quantifies the relationship between scale and tangible performance. The data shows, conclusively, that scale drives superior returns.”

CEM found that small funds with less than US$1 billion in assets historically failed to achieve positive net value add (NVA). NVA is the amount by which an investor’s returns exceed those of the market benchmark, net of costs. Funds with assets between US$1-10 billion produced 15 basis points of NVA while those with US$10 billion or more delivered 29 basis points of NVA over the same period.

Importantly, CEM found that larger funds were able to achieve superior results while taking on less risk. CEM identified internalization, active management, and economies of scale in spend as primary drivers that improve NVA as a fund’s size grows.

“This research makes clear that scale accelerates fund performance, allowing funds to build more diversified portfolios, pursue internal and active strategies and reduce costs,” Jethalal said.

The full report can be accessed here.

About CEM Benchmarking (CEM)

CEM Benchmarking is the leading, independent provider of cost and performance benchmarking information for fiduciaries and managers of asset pools: defined benefit, defined contribution, sovereign wealth, and other managed assets worldwide. CEM is deeply committed to helping clients, whether directly or through advisors/consultants, run cost-effective operations that generate value for their stakeholders. With vast industry knowledge and a robust database spanning 30 years and $11+ trillion in AUM, CEM helps more than half of the world’s top 300 pension schemes understand and manage their costs and performance. CEM also facilitates better pension outcomes by both sharing cutting edge research derived from its proprietary databases and hosting annual conferences.

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