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Public pension funds that merge with their peers have historically hailed it as a smart way to cut costs and achieve economies of scale.
But the strategy of consolidating funds, particularly for large ones, is not yielding the benefits it once once did, new research shows.
In fact, for some funds, the economies of scale they are achieving is “rather mediocre,” according to a paper published this month by researchers Jacob Antoon Bikker and Jeroen Meringa from De Nederlandsche Bank, the Netherlands’ central bank.
“The argument for consolidation still exists, but is limited,” according to the paper. The research comes as pension funds continue to form tie-ups and as many smaller pensions do pension risk transfer deals with large insurance companies. The argument for either type of transaction is to lower costs for each invested dollar or euro. One recent example in the U.S. of consolidation is the state of Illinois’s push to combine more than 640 local poli
By Tjibbe Hoekstra2021-05-06T11:14:00+01:00
Lower investment management costs are no longer a reason for pension funds to consider a merger, according to two scholars affiliated to pension regulator De Nederlandsche Bank (DNB).
“Today, scale hardly produces cost efficiencies for pension funds,” according to Jaap Bikker, a retired professor at Utrecht University and a guest researcher at DNB, and Jeroen Meringa, a company analyst with the regulator.
The pair said that dozens of pension funds in the Netherlands have merged or been liquidated in recent years. “The most important reason for these mergers have been lower costs per invested euro due to economies of scale.”