Key Takeaways
- • Small- and mid-sized private equity funds have outperformed large counterparts with more robust and persistent returns, contrary to prevailing investor assumptions that scale delivers superior performance and resilience.
- • Large fund raising has significantly outpaced deal flow over the past decade—large funds grew capital raises at 14.9x while deal flow grew only 1.6x—creating competitive pressure and elevated entry multiples that constrain returns.
- • Small and mid-sized funds exhibit favorable fundraising dynamics with deal flow growth of 2.7x substantially exceeding capital raising growth of 2.4x over the past decade, reducing competitive intensity and supporting better deal economics.
- • The small- and mid-segment represents the vast majority of private equity opportunities across buyout, growth, and venture capital strategies, representing a materially underexploited investment avenue for limited partners.
- • Schroders' analysis spanning over 64,000 private equity funds and 400,000 deals from 2000 to 2023 demonstrates persistent historical outperformance in the small-mid segment across all regions and strategies.
Summary
Schroders' comprehensive analysis challenges a widely held institutional belief that larger private equity funds deliver superior risk-adjusted returns. Using data from over 64,000 private equity funds and 400,000 transactions spanning buyout, growth, and venture capital strategies from 2000 to 2023, the asset manager demonstrates that small- and mid-sized funds have materially outperformed their large counterparts while demonstrating more robust and persistent returns over time.
The performance differential appears structurally driven by capital allocation dynamics within the industry. Over the past decade, large private equity funds have experienced explosive fundraising growth—expanding at 14.9x—substantially outpacing the growth in available large deals, which expanded at only 1.6x. This significant imbalance has created intense competition for a constrained deal flow, resulting in inflated entry multiples and compressed return potential for mega-funds. Conversely, small- and mid-sized funds have experienced more balanced capital-to-opportunity dynamics, with deal flow growing at 2.7x annual growth while fundraising expanded at a measured 2.4x, creating favorable conditions for disciplined capital deployment and attractive entry valuations.
For classification purposes, Schroders defines the small- and mid-sized segment as funds managing under $500 million and $2 billion in assets respectively, with corresponding deal thresholds of under $50 million and $200 million. The analysis encompasses all geographic regions and investment strategies while excluding single-deal funds, funds of funds, and deals below $1 million to ensure data quality. For performance analysis, fund vintages beyond 2017 were excluded to ensure stability of return measurements.
The strategic implication for institutional investors is substantial: the small- and mid-sized private equity segment represents the overwhelming majority of transaction opportunities across all strategies, yet continues to attract a disproportionately small share of limited partner capital. This mispricing of risk-adjusted return potential—driven largely by scale-related inertia and institutional preference for mega-fund commitments—creates a material opportunity set for allocators willing to deploy capital into the historically outperforming segment.
The performance differential appears structurally driven by capital allocation dynamics within the industry. Over the past decade, large private equity funds have experienced explosive fundraising growth—expanding at 14.9x—substantially outpacing the growth in available large deals, which expanded at only 1.6x. This significant imbalance has created intense competition for a constrained deal flow, resulting in inflated entry multiples and compressed return potential for mega-funds. Conversely, small- and mid-sized funds have experienced more balanced capital-to-opportunity dynamics, with deal flow growing at 2.7x annual growth while fundraising expanded at a measured 2.4x, creating favorable conditions for disciplined capital deployment and attractive entry valuations.
For classification purposes, Schroders defines the small- and mid-sized segment as funds managing under $500 million and $2 billion in assets respectively, with corresponding deal thresholds of under $50 million and $200 million. The analysis encompasses all geographic regions and investment strategies while excluding single-deal funds, funds of funds, and deals below $1 million to ensure data quality. For performance analysis, fund vintages beyond 2017 were excluded to ensure stability of return measurements.
The strategic implication for institutional investors is substantial: the small- and mid-sized private equity segment represents the overwhelming majority of transaction opportunities across all strategies, yet continues to attract a disproportionately small share of limited partner capital. This mispricing of risk-adjusted return potential—driven largely by scale-related inertia and institutional preference for mega-fund commitments—creates a material opportunity set for allocators willing to deploy capital into the historically outperforming segment.
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