Does Fund Size Matter? (2024)

Buyout Spread of Net IRR by Fund Size

Breaking out buyout returns by fund size reveals several key observations that might shape how investors allocate capital. On the smaller end (<$1B) we observe the greatest dispersion of outcomes within the peer set. This is likely attributable to small fund managers having emerging backgrounds (often with a short or unproven track record) and running more concentrated portfolios. We believe mid-market funds offer an attractive balance of risk and return: Those funds have less downside than smaller peers by virtue of slightly more diversification but can still capitalize on niche opportunities. In contrast, larger funds tend to demonstrate a narrower dispersion of returns, likely because they are generally more diversified across sectors, and often contain more deals.

We believe the mid-market opportunity offers the best experience for most investors, given the slightly higher average return, lower downside dispersion, and ample upside for skilled fund pickers to differentiate themselves. A core mid-market exposure can be complemented with exposures to small, specialist funds in niche sectors. Larger funds can be an attractive option for investors seeking a diversified exposure through a single commitment. Investors may also find added comfort in larger funds during market headwinds given the lower risk profile. Although the median returns across all fund sizes are similar, each have a slightly different risk profile that investors should be cognizant of when crafting a portfolio strategy.

Definitions

Corporate Finance/Buyout - Any PM fund that generally takes control position by buying a company.