The debate of the best performing private equity funds by fund size may never end as analysts use a variety of data and approaches to segment investors. However, market correlation by fund size is a statistic that is rarely provided the consideration it deserves and even more rarely properly calculated against the public market. If portfolio diversification is important and stocks are a major target of investment allocation, then where one invests in private markets should be just as important as how much with whom.
Bigger funds 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. Megafunds, as a result, are often buying the market. The smaller the fund is, the less its returns tend 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 Cambridge.
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