Scale Advantages in Private Equity Buyout

Private equity (PE) strategies are beginning to show improvement after three years of mixed performance. An early signal – such as rising M&A activity – suggests a healthier environment, and we expect exit activity to pick up, even though working through the large backlog of investments may take time. As conditions continue to improve, assessing new fund opportunities is taking on greater importance.

The capital that’s entering PE is rewarding performance and blue-chip funds; signaling investors are consolidating their relationships around a smaller number of managers. In 2025, 13 funds raised $5 billion or more in capital to a total of $137 billion, which represented 49% of PE capital raised in the U.S. (Exhibit 1). With several large funds currently open and raising capital, this cohort could account for an even larger share in the years ahead. Global PE buyout shows a similar trend. Large buyout funds manage 46% of global assets, up from 35% in 2015.¹ Consequently, we think PE could become more bifurcated in the years ahead. For well performing managers, strong returns in predecessor funds should provide a tailwind for new fundraising, while struggling funds holding onto difficult to sell investments could be left behind.

Large Funds Show Safer, More Consistent Returns

Median returns are certainly representative, but they also don’t present the full picture—an investor is not going to select the median fund in each vintage nor invest in all of them. Consequently, fund selection is of heightened importance in PE compared to public market funds, as performance dispersion tends to be much wider. This means that analyzing the distribution of returns is even more important in PE (and venture capital) than in other asset classes, as it provides a clearer picture of the upside and risks of a particular fund category.

What we’ve seen is that larger funds are safer and provide more consistent returns. While there is no guarantee that this will continue, there are certain structural considerations including scale, relationships to drive deal originations, and industry expertise to help create value that can provide measurable benefits. Looking at the percentile data (showing performance of funds at the 10th, 25th, 50th, 75th, and 90th percentile levels) for each fund size cohort shows comparable median performance but with a tighter dispersion for larger funds (Exhibit 2).

The dispersion of returns reinforces the moderate risk-return of larger funds. The higher floor of returns, 7% for the low decile of large funds, is materially higher than 1% and 3% for small and mid-buyout funds, respectively (Exhibit 2). Considering it is very difficult to time investments in PE across any dimension (vintage, fund size, strategy, geography), larger funds can be seen as delivering more consistent returns across various market cycles.

Scale Benefits in Buyout

Large buyout is not the only way to win in PE. Value creation often relies on acquiring a majority stake in underlying investments to refine the strategy or make operational changes. Large firms can use in-house resources such as operating partners, capital markets teams, and talent to help portfolio companies generate operational improvements. Smaller specialist funds can also generate outsized performance with a vertical focus and industry expertise in areas such as software or health care.

Over the last 10-plus years, the graduation of higher-performing managers into the large buyout cohort has been one reason for the strong fundraising. Many of the firms at the larger end of private equity got big for a good reason—which is that investors rewarded high performance. Numerous firms have moved from mid-sized funds into the large fund cohort. Because PE performance has been mixed over the last three years (2022-2025), return outperformance is resulting in easier fundraising and influencing a positive cycle for such funds.

Larger funds have the luxury of patience. The elongation of the private company life cycle and the increased scale of companies in private markets allows PE to capture more of a company’s growth phase. Larger funds also have a luxury in being patient with origination valuation as these funds may not feel as much pressure to deploy capital quickly. From 2010 through 2019 PE buyout multiples averaged 9.9x EV/EBITDA, about one point above corporate-led M&A multiples (Exhibit 3). This spread has widened over the last five years to three points partly due to more competition for deals from a greater number of PE firms (Exhibit 3). Larger buyout firms see a greater volume of origination opportunities, which arguably allows them to be more selective with purchase price. In not chasing valuations – as some in the industry have – more consistent returns can arguably be generated.

Buyout funds are also underwriting larger investments, defined as those over $1 billion. In 2025, 150 such deals totaling $570 billion were completed, a new record in deal value for large deals illustrating the scale of large PE firms.

Operational advantages

Successful large buyout strategies also have infrastructure, networks and human capital scale that can provide advantages in their origination and value creation efforts.

• Infrastructure: Scale can provide significant benefits in allowing greater firmwide investment in data and technology. This can include the inevitable accretion over time of broader and deeper historical data sets derived from deal flow data. This may allow for more comprehensive and nuanced views of the market and individual companies, and in conjunction with technology, can speed up the due diligence process and allow the manager to move on a deal more rapidly and with greater certainty.
• Networks: As private equity firms have scaled over the last decade, they increasingly tap into larger networks. This is a function of both long industry experience and increased headcount. Broader and deeper networks can improve the quality and breadth of the deal origination funnel, making sure that investment opportunities do not slip through the net. Accessing the best opportunities is vital to alpha generation in private equity.
• Human capital: Large, well-resourced managers, due to both prestige and pay structure, may be able to better attract and keep leading investment professionals. Having the right people in place is fundamental to right deal selection and execution. Further, in an industry that invests with much longer time horizons, better retention and team continuity may be a key factor in sustaining success across various market cycles.

The above factors also contribute to increasingly sophisticated risk management capabilities. The advantages from amassing deep data sets as private markets mature arguably accrue disproportionately to larger firms with the ability to collect, analyze, and apply large volumes of data.

Investors assessing PE investments should look across the fund scale spectrum to help determine the appropriate exposure and investment. Large buyout funds have played a highly constructive role in investor portfolios, with strong median performance and reduced downside at the lower quartile and decile level. There are reasons to believe this is structural, rather than just a transient product of broader market dynamics. Smaller funds certainly have a place in a well-balanced portfolio. We believe they can provide differentiated exposure in terms of sector, company profile, and geography, and allow investors to express a view on future market trends.