Are Larger Self Managed Superannuation Funds Riskier?

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. The results show that the percentage of the portfolios’ investable funds allocated to risky assets has no clearly defined relationship with portfolio size. A high net worth SMSF will, on average, have a greater absolute dollar amount invested in risky assets but 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. There is not a strong tendency for higher net worth SMSFs to bear greater risk through increasing allocations to risky assets but there is, nevertheless, a tendency for higher net worth SMSFs to have higher allocations to risky assets.

Keywords: Self Managed Superannuation, Net Worth, Risk

JEL Classifications: G11, G23, G28