The myth of size, scale and location in active asset management - Angles & Perspectives Q4 2025

The myth of size, scale and location in active asset management

The investment industry is ruled by a compelling narrative around size, with the global investment manager selection process in particular favouring larger asset managers, typically based in the global finance hubs. However, does this translate into benefits for their clients? Our research reveals that behind ongoing allocations to larger global managers lies a persistent myth – one that conflates size with capability, confuses scale with skill, and assumes that the number of offices asset managers have correlates with alpha generation.

How the manager selection process entrenches a bias towards large managers
Cerulli Associates found that scale is the top factor for institutional asset owners when selecting investment managers, with 85% of institutional investors citing it as a primary consideration when choosing a manager for an investment mandate. This research directly reflects the advice clients receive on manager selection.

The logic aligns with conventional wisdom about operational advantages. The US’s Office of Financial Research reinforced this view, noting that large asset managers continue to win significant market share “primarily by offering comprehensive solutions that benefit from established franchises and economies of scale,” with the largest asset managers generally offering “the most comprehensive, low-cost client solutions”.

Simply being big offers some important commercial benefits that can impact the manager selection process. Institutional Investor reported that larger asset managers enjoy advantages in the consultant selection process because “they have more resources to devote to courting consultants,” with the average asset manager dedicating the equivalent of three full-time employees to consultant relations. This creates a self-reinforcing advantage for large, established managers. Research on the largest asset managers notes that “large asset managers can benefit from economies of scale that may translate into competitive advantages,” particularly for clients requiring multi-regional deployment and global coordination. The pattern across consultant research is clear: size, infrastructure, and the ability to offer comprehensive solutions are weighted heavily in formal allocation decisions.

Global mega-mergers seem to reinforce this perception, as does a major recent local deal. Said deal seemed to exemplify institutional investors’ stated preference for scale and global capability – i.e. a large, established manager with the footprint and resources to service clients across multiple geographies.

Unpacking the myth: Methodology and findings
To test whether the prevailing view about the importance of manager scale and location is valid, we analysed 255 global asset managers with 10-year track records, mapping their returns against the MSCI World Index. For each manager, we gathered organisational data on assets under management (AUM), employee headcount, number of office locations, and geographic headquarters. We then examined the statistical relationship between these size and scale characteristics and relative fund performance (total return minus index return).

The results contradict the conventional narrative. Organisational AUM showed a correlation of just -0.07 with relative performance – statistically indistinguishable from zero, but with larger firms generally underperforming. Employee count correlated at -0.08, once again not statistically significant but suggesting that larger teams slightly underperformed smaller ones. Average fund AUM showed a weak positive correlation of +0.06, probably related to either performance attracting assets or a relative market rise over the period. Geographic location proved equally immaterial. Distance to the nearest financial hub – a proxy for proximity to either major centre (London or New York) – showed a negligible correlation of +0.05, implying there are benefits to being further away! Interestingly, when comparing managers by actual location, London-based funds showed marginally better average performance than New York-based funds, but this difference was not statistically significant and offers no support for the ‘proximity to financial hubs’ thesis. If anything, it might be an advantage, as Warren Buffett opined, to be ‘away from the noise’. None of these relationships showed statistical significance.

The myth exposed
The data reveals a striking disconnect between the factors that institutional decision-makers value, and realised net fund performance. Global reach, multi-office infrastructure and large employee bases do not correlate with either out- or underperformance, and the ‘comprehensive solutions’ and ‘economies of scale’ of large asset managers do not translate into measurable performance advantages. This means that the 85% of institutional investors who cite scale as their top selection criterion are basing allocations on factors that have no explanatory power for returns.

Perhaps most damning: 83.5% of all funds in the sample underperformed their benchmarks over the 10-year period, regardless of size. Top performers were scattered globally across organisations of vastly different scales, suggesting that the factors driving outperformance are idiosyncratic and likely include individual manager skill, investment philosophy, investment process, team dynamics, fee structures and strategy execution, rather than organisational scale or geographic footprint.

Size, scale and location are not predictors of investment success
The mythology of size, scale and location in active asset management has become entrenched as part of the manager selection process. It provides an easy-to-defend framework for allocation decisions, while providing justification for the bias towards established incumbents. The evidence, however, suggests this narrative has little to do with investment performance. For those seeking investment returns, the size of the managers’ offices matters far less than the quality of the minds within them.