Speaking to InvestorDaily, Mr Thomas acknowledged that the industry-wide pursuit of scale in an effort to drive down costs has “some merit”.
But the benefit disappears if superannuation funds are so big they effectively have to index half of their funds under management, he said.
Mr Thomas pointed to AustralianSuper, which because of its size has 10 active managers that may well end up cancelling each other out.
“If you’re plus or minus half a percentage of the index weighting it’s an index fund in our view,” he said.
van Eyk provides a portfolio ‘X-ray’ service for its clients and adviser model portfolios, which determines how ‘active’ a portfolio is – and how large the tracking error is, said Mr Thomas.
Investors should not be paying active fees for a passive outcome, he said.
There is likely to be a significant “cost wastage” within large superannuation funds that is not well documented, he added.
In addition, the larger superannuation funds become, the less access they have to capacity-constrained investment strategies, said Mr Thomas.
Talented fund managers who refuse to yield to the demands from large funds to discount their services may simply walk away, he said.
“The fund managers will say ‘You know what? I’m actually going to save some capacity for retail’,” said Mr Thomas.
At some point, investment managers are going to chase the higher margins because they need to “feed the family”, he said.
In other words, increased economies of scale and cost reduction can come at the expense of diversification for the “mega funds”, he said.
