Capacity Analysis for Equity Funds

Michael O'Neill*, Camille Schmidt, Geoffrey Warren

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This article discusses the definition and determinants of capacity and outlines a practical approach for analyzing the capacity of equity funds. It is argued that capacity analysis should focus on effective capacity, defined as the level of assets under management at which any additional investments would generate alpha below a minimum threshold at the margin, for the active component of a portfolio. The approach combines potential drivers into an integrated analysis and generates insight into the critical factors for the capacity of the strategy being analyzed. The approach is illustrated for a factor-based momentum strategy and an actual equity fund.
Original languageEnglish
Pages (from-to)36-49
Number of pages14
JournalJournal of Portfolio Management
Volume44
Issue number5
DOIs
Publication statusPublished - 2018

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