Fund management is to economists what a black hole is to particle physicists. From an article titled “Competitive Failure” in this week’s The Economist:

Economists tend to think that an industry divided between hundreds of players, each with a tiny market share, should be fiercely competitive, with prices cut to the bone. But economic theory struggles to explain the bizarre world of fund management, where the market is fragmented but fees stay stubbornly high.

And a little bit further:

Bigger does not necessarily mean better when it comes to running other people’s money. True, a bigger group has more money to spend on marketing and can achieve economies of scale in areas such as back-office technology and administration. But there are also disadvantages of scale. Large funds are less flexible and tend to move prices against them when they trade; they also tend to be more bureaucratic and end up alienating talented managers, the ones clients want to look after their money.

The full article is here.