Public pension funds that merge with their peers have historically hailed it as a smart way to cut costs and achieve economies of scale.

But the strategy of consolidating funds, particularly for large ones, is not yielding the benefits it once once did, new research shows.

In fact, for some funds, the economies of scale they are achieving is “rather mediocre,” according to a paper published this month by researchers Jacob Antoon Bikker and Jeroen Meringa from De Nederlandsche Bank, the Netherlands’ central bank.

“The argument for consolidation still exists, but is limited,” according to the paper. The research comes as pension funds continue to form tie-ups and as many smaller pensions do pension risk transfer deals with large insurance companies. The argument for either type of transaction is to lower costs for each invested dollar or euro. One recent example in the U.S. of consolidation is the state of Illinois’s push to combine more than 640 local police and fire pension funds after Governor J.B. Pritzker signed a law requiring it in December 2019.

The researchers analyzed reports on 280 Dutch pension funds’ investment costs from 2012 through 2019, which had previously been sent to the country’s central bank. At the end of 2019, the total value of pension fund assets in the country amounted to €1.47 trillion (USD $1.78 trillion), the paper said.

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