Does size matter … with private equity funds?

    Blackstone Group is in the final stretch of raising what would be the largest private-equity fund ever. Big funds, however, don’t necessarily translate into big returns, The Wall Street Journal reports.

    The private-equity giant has capped its latest fund at around $25 billion amid strong demand, according to people familiar with the matter. For comparison, local firm Bernhard Capital Partners raised $1.2 billion in its second fund, announced earlier this year.

    If Blackstone Group collects their cap, it would take the fund past the $24.6 billion record set by Apollo Global Management LLC in 2017.

    Others also are raising big funds: Advent International said earlier this month it had raised a $17.5 billion fund, and software-focused Vista Equity Partners is raising a $16 billion vehicle.

    The rise of megafunds reflects the growing demand for private equity from large investors such as sovereign-wealth funds with hundreds of millions of dollars to put to work.  

    The biggest issue with large funds is that they generally have to find bigger targets to invest their money, which means they have fewer options. It tends to be more difficult to broadly implement new operating strategies at larger companies than at smaller ones. Mega funds, as a result, are often buying the market.

    The smaller the fund is, the less its return tends to be tied to the broader market. U.S. funds of less than $350 million had a correlation of 0.38 with the S&P 500, compared with 0.62 for funds $10 billion or more, according to data from investment firm Cambridge Associates. Read the full story.  

     

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