Is splitting large funds the key to protecting performance?

Fund managers should consider splitting funds when they reach a critical size, as Fidelity famously did back in the noughties, according to a study conducted by the Pensions Institute at Cass Business School.

The study has found a 1% increase in funds under management could lead to a 9% drop in a fund's alpha per year once a fund reaches a certian size. It claimed large funds are forced to scale up their existing investments, driving up asset prices and pushing down yields. Professor David Blake, one of the academics conducting the study, said the reason large funds underperform is "star managers become victims of their own success", as they buy more of the same investments when new money comes in. "The most likely explanation for the negative relationship between fund size and performa...