2018 Performance Monitor: Impact of Private Capital Fund Size on Performance

by Preqin

  • 20 Sep 2018
  • PE
  • VC
  • PD
  • RE
  • INF
  • NR

Does size matter? In the penultimate blog in The 2018 Preqin Alternative Assets Performance Monitor series, we examine fund performance by fund size across the private capital industry to uncover if the size of a fund has a significant impact on net returns.

The largest vintage 2005-2015 private capital funds (those greater than $4.5bn) generated higher returns than all other fund sizes, while also exhibiting a lower risk profile. Smaller funds (less than $500mn) across the same vintage years have the highest level of risk, while funds between $500mn and $1.49bn in size have generated the lowest returns, with a median net IRR of 10.5%.

The annualized returns for the one-, three- and five-year periods to December 2017 have consistently been between 10% and 19%, highlighting the healthy returns such funds can provide for investors over the short and long term. Similar to what is shown in the chart above, private capital funds greater than $4.5bn in size generated the highest returns over all horizons shown, while funds with a size of $1.5-4.5bn achieved the lowest return over three- and five-year periods (+10.1% and +11.7% respectively).

Between 2000 and 2012, buyout funds of all sizes have performed at a similar level with mega funds the most affected by the GFC. However, since 2012 there has been a divergence in performance with the PrEQIn Mega Cap Buyout Index standing at 684.5 as at 31 December 2017, notably followed by the PrEQIn Small Cap Buyout Index (605.8).

Preqin data demonstrates the value that private capital investments can add to investors’ portfolios; while larger funds have typically generated higher returns, smaller funds have generally exhibited a higher level of risk with the potential to produce both smaller and greater returns. It is apparent, therefore, that fund size remains an important factor for investors when it comes to fund selection. However, accessing larger funds managed by established firms will likely prove more challenging for smaller investors due to these vehicles often seeking large commitments and being oversubscribed.

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