How do mutual funds transfer scale economies to investors? Evidence from France

Previous studies on the U.S. mutual fund market show that funds transfer large economies of scale to investors only if these economies come from outside service providers. Unlike the US market, in the French market, most of the fund services are provided by the fund company itself or by the companies belonging to the same group. Because scale economies exhibited during the fund operation stay in the fund company or the parent group, funds might not be willing to transfer scale economies to investors. In this article, using a large sample containing 3125 equity funds and 1296 bond funds in the French market, I examine whether and in which services funds transfer scale economies to investors. The results show that at the fund and the family level, only slight economies of scale are passed on to investors through the reduction of total fees as the fund assets increase. Funds seem to transfer large economies of scale in portfolio management and distribution services but slight economies of scale in administration services. Bond funds, which have in general lower fees than equity funds, do not pass economies of scale on to investors.