Evaluating fund capacity: issues and methods

DOI: 10.4225/50/583cde5f59a3a
30 September 2016

This report examines the evaluation of capacity in an investment management context, outlining the key issues and various methods of analysis. We address the following question: “how large can a fund get before it is unable to create additional value for its investors?” In doing so, we frame the discussion under the assumption that an active fund forms a portfolio based on a particular investment ‘signal’, which should be read as a general term for the information or process by which investment opportunities are identified. A signal may comprise indicators, forecasts, viewpoints, a strategy, and so on. The issue being considered is how far a signal can be leveraged through additional funds under management (FUM), before management should consider either closing the fund to new money, or changing the signal and thus the investment process.

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Geoff Warren, Michael O'Neill, 2016, Evaluating fund capacity: issues and methods, Centre for International Finance and Regulation, viewed 30 April 2017, <http://dx.doi.org/10.4225/50/583cde5f59a3a>.

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