Strategic Investment Group

Why Bigger Is Not Always Better With Buyout Funds

March 2007

Inundated by the flood of headlines about gargantuan private equity buyout funds acquiring large public companies, investors have begun ignoring the activities of smaller funds. Yet smaller funds can offer a better risk/reward proposition than many of these “mega-funds.”

Mega-buyout funds that do take risks face reduced investment opportunities because of their size. With leveraged purchasing power of $100 billion, a buyout firm must seek acquisitions in the public markets. There, the firms must pay a substantial premium over and above the price set by an efficient market, where bargains are scarce.

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