Does size matter for an investment fund?

The size of an investment fund is in the line of business usually the main characteristic for the success of the fund. However, sometimes the volume can become a burden because it makes it more difficult to respond quickly to changing market conditions.

Top funds with an A-rating, good performance, and a couple years of a market presence are managing much higher voloumes than those with bad performance (according to a study from the Feri Eurorating Services rating agency). The probability of a causal relationship between the success of a fund and the willingness of investors to invest, which impacts the volume, is obviously pretty high.

However, that does not necessarily mean that small funds cannot produce a good performance. Especially in niche markets are smaller funds preferable because they allow a more flexible fund strategy.

I think the main differentiator for sustainable success is information and how this information is used.

What does that mean for the fund managers / the investment bank?

• The investment bank should try to diversify their portfolio to mitigate the risk. This can be achieved by issuing a good mixture of larger and smaller funds.
• The fund managers are dependent on the data from different sources, i.e. market data, benchmarks, financial information, etc. to make better informed decisions.
• Fund managers of larger funds cannot react as quickly as fund managers of smaller funds. Both need the right KPIs (e.g. risk measures like volatility and VaR) always at their disposal. They also need to analyze the data from different angles.
• The strategy may be different for funds of different sizes, the information demand is similar. Transparency of data is always key.
• In order to obtain the good ratings of their funds they need to impress their investors as well as the rating agencies. The best way to do this is good performance and an excellent presentation of the fund progression.

Detailed information about the performance of the fund and the reasons for the development across multiple data sources, transparency, flexibility of data analysis, and good performance when handling large volumes of data are key factors for the success of fund managers. That is the domain expertise of Business Intelligence.

To sum up, the volume of a fund may be important but without the knowledge and the trust in the data a fund manager cannot ensure the future success of his fund. I have seen that multiple times, dashboards that present the fund manager with all relevant information at a glance with the ability to analyze further and the option to distribute the results easily to other stakeholders can make the difference between a well performing and an excellent performing investment.