Three tenths of funds could be sub-scale, data suggests

At least three tenths of funds in the IMA sectors hold less than £30m in assets, according to Morningstar data, the level most managers regard as the minimum for the average economical fund.

Some 733 funds out of 2450 in Morningstar’s IMA sectors database fall below the size constraints, but Morningstar says the overall figure is probably larger as many smaller funds have not disclosed their size.

The data request was prompted by an interview with Ryan Hughes, a fund manager at Skandia, who agrees that £30m is generally regarded as an economical fund size and any funds below that are in danger of closure.

As a result, Hughes says groups could merge or close many more funds in the next few years. (article continues below)

Dean Cheeseman, the former head of multi-manager at F&C Investments, made a similar statement at the start of 2009, when he predicted a wholesale wave of fund mergers and closures.

He pointed out certain unusual circumstances would make a fund investable below the £30m barrier, such as if it was only in the soft launch stage or in the early days of a hard launch.

Tony Yousefian, the chief investment officer at OPM Fund Management, has also said some smaller fund management companies can keep funds economical below the £30m mark as they have fewer costs.

However, the sheer number of funds below the £30m size suggests fund management companies may have further room to cut costs as well as boost their operations if the recovery gathers pace.