Are larger self managed superannuation funds riskier?

Abstract

[Abstract]: In this paper, we examine the relationship between the portfolio size and allocation to risky assets that characterises self managed superannuation funds (SMSFs). In particular, we investigate whether the allocation to risky assets is higher for higher valued SMSFs. At this early stage of SMSF research the gathering of facts about these economic entities is necessary to guide policy makers and regulators. This study contributes to this small but growing body of factual knowledge regarding the microstructure of SMSFs in Australia. A cross-classification analysis based on a chi-square test statistic shows that the percentage of the portfolios’ investable funds allocated to risky assets has no clearly defined relationship with portfolio size. Whilst a high net worth SMSF will, on average, have a greater absolute dollar amount invested in risky assets, the portfolio weightings may be such that a high valued fund has a lower percentage of its portfolio invested in risky assets than a much smaller fund. To further test the relationship between fund size and allocations to risky assets, a series of regressions were performed. The results reveal a small tendency for higher net worth SMSFs to bear greater risk through increasing allocations to risky assets. The tendency for larger SMSFs to allocate more investable funds to risky assets is small but detectable by statistical analysis.