It is simply because the objectives of mutual fund companies and mutual fund investors are totally different.
The more asset mutual fund companies gather, the more money they make. On the other hand, mutual fund investors want investment performance and protection of their capital.
Most of mutual funds fail because of their assets are so big that they could not buy the best stocks and sell the losers. The major stock holders of Bear Stearns and Lehman Brothers during 2008 financial crisis were all mutual funds, and they have no choice but held the falling stocks all the way to zero.
In the June 25, 1999 Business Week, Warren Buffett said: “If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”
No mutual fund companies want to cap their funds at $10 million, and many mutual funds are managing multi-billion dollars of retirement asset.
Yale Professor David F. Swensen, who is on President Barack Obama’s Economic Recovery Advisory Board, explains very well in page 294 of his 2005 book “Unconventional Success”: “For the vast majority of mutual-fund investors, the future appears dim. Regulators identify abuses, deal superficially with the most high-profile issues, and move on to other matters. Meanwhile, the mutual-fund industry find new ways to place profits above investor interests. Even if the SEC eliminates pay-to-play revenue sharing, enforces fair-value pricing mechanisms and bans soft dollars, the mutual-fund industry, as it has from its beginning in 1924, will employ its endless creativity to find visible and less visible means to take advantage of individual investors.”