Private Equity Fund Size

Abstract

The amount of capital committed to a Private Equity (PE) fund influences several key aspects of how the fund operates. More experienced and successful PE firms usually raise larger funds. Large funds earn more fees and tend to make more numerous and larger investments. These dynamics invite the question of how the scale of a fund affects its activities and investment success. A common concern is that the value-adding skill of individual PE fund managers may be diluted when they manage larger funds. At the same time, larger funds often have more experienced partners, more resources, and better networks, which may help to make successful investments in spite of their size. This article provides a discussion of these issues and relates them to the evidence from empirical research studies. The topics covered include how Buyout and Venture Capital funds scale their investments with size, and the relation between size and investment returns.

Keywords: Private Equity, Buyouts, Venture Capital, Performance, Returns, Scale, Skill

JEL Classification: G11, G23, G24