Cost Efficiency of German Mutual Fund Complexes

Abstract

Results from frontier analysis show that German investment management companies are far from being cost e fficient. The average investment management company may be able to reduce its costs by 48% to 75% when compared with the best-practice company in the sample. The level of e fficiency even decreases over the sample period. These results are conservative estimates, since the design of the research allows for the calculation of upper bounds on cost effi ciency. Based on a set of consistency conditions, the results are qualitatively the same within and across the different approaches. The results for explaining the nature of cost e fficiency indicate that investment management companies with higher average fund sizes and providers of institutional funds are cost e fficient whereas providers of real estate funds are less cost e fficient than providers of security funds.