Mega Funds: Size Matters (Q2 2016)

Globally, there are now 634 mutual funds with greater than USD five billion in AuM.

While these ‘mega’ funds account for less than 1.0% of the total number of mutual funds available for sale worldwide (of a total ~65,000 funds), they control 45% of the total global AuM (USD 10.2 of 23.0 trillion).

As funds grow to massive size, they take on complexities and opportunities not found with smaller asset bases.

Active managers should consider two things:

1. If you are managing a mega-fund, allocate more resources to keeping the assets you have than bringing in new assets.  Be mindful of auto-flow and work to increase the AuM quality in the fund.

2. If you are competing against a mega-fund, be aware that many managers of mega funds do not pay attention to point 1 (above). Mega funds have a tendency to collapse quickly from blistering heights.  Well positioned, competitive products stand to benefit immensely when a giant topples over.

In this edition, we look at the universe of mega mutual funds through several lens including: U.S. v. ‘Cross-Border’ and active v. passive.  We illustrate a couple of recent mega-funds that have collapsed and identify their root causes: auto-flow and low asset quality.  We also give a preview of a couple teetering on the precipice of collapse.

Mega Funds: Size Matters (Q2 2016) contains detailed charts illustrating the growth dynamics of the mega fund universe over the last several years.


We welcome your thoughts and questions.



1) US dominates mega fund universe: 446 of the 634 worldwide mega funds are sold in the U.S. This represents 82.9% of global mega fund assets ($8.5 out of $10.2 trillion).

2) Europe is less concentrated relative to US: 68.7% of total U.S. mutual fund assets are in mega funds – the U.S. has never been this hyper-concentrated. This concentration is in sharp contrast with European domiciled funds, which have 16.9% of assets concentrated in mega funds.

3) ‘Passification’ of global fund universe led by mega funds: In 2007, 11.6% of mega fund assets were passively managed. As of Q2 2016, passive funds make up 25.8% of global mega fund assets ($2.6 out of $10.2 trillion). By contrast, passive funds make up only 15.1% ($3.5 out of $23.0 trillion) of the broader worldwide mutual fund universe.

4) Passive strategies own economics of scale, but barriers to entry are high: The average passive mega fund has $40.1 billion in assets while its active counterpart has $13.4 billion – a third as large.

5) Identifying Auto-flow: Auto-flow (defined as the simultaneous rapid rise in AuM volumes and decrease in AuM ‘quality’) is particularly prominent when looking at mega funds. Increasing the ‘quality’ of assets in investment products leads to increased longevity and stability of AuM.


View below or download here.

Propinquity Mega Funds Q2 2016


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