In theory, funds management is a highly scaleable business where profit growth results from increased funds under management (FUM) while product quality (investment returns) remains unaffected – alpha creation is purely a function of portfolio construction through time and the size of the portfolio is irrelevant. However, there is reason to believe the product quality of a funds management business is not independent of FUM. The difference between the theoretical world and the real world relates to transaction costs. This paper describes transaction costs, and considers factors likely to influence the level of these costs, before turning to the impact of size and inves...