Smaller is beautiful

18 January 2010 By Lauren Silva

New research shows many investors have lost interest in multibillion dollar funds. That will make it tougher for big private equity shops like Blackstone and KKR to raise money in the amounts they are used to. Some may even have to relearn smallerscale methods of investing.

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BC Partners plans to start raising a 6 billion euro fund in later this year, the same size as its last fund. Its current fund has already invested nearly 75 percent of its cash.

Mega buyout funds, or private equity specialty funds larger than $4.5 billion, return 23.9 percent to investors annually after five years of investing, versus 23.7 percent for large funds, 29.3 percent for midmarket funds, and 21.5 percent for small buyout funds, according to a recent report by research group Preqin.

In the survey of 100 investors in private equity, 9 percent said they would be investing in mega buyout funds in 2010 compared to 53 percent who prefer small and midsized funds. Meanwhile, 37 percent of investors indicated that they would now be avoiding mega buyout funds after previously investing in them, while 5 percent said they would be avoiding small and midmarket funds.

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