Middle Market vs Mega Funds

The private equity industry is extremely competitive. Investors are constantly looking for superior returns and there are more and more private equity firms entering the space. In general, private equity funds are characterized by size, and they have very different characteristics based upon this size.

Megafunds

Megafunds are the world’s largest private equity firms. These are the private equity firms that you would typically see on the front page of the Wall Street Journal. Many times these firms buy household company names such as Kraft Heinz, J. Crew, Hertz, and Hilton. Unlike smaller private equity firms, megafunds usually have multiple private equity funds focusing on many differed types of private equity investments. Many of these firms also have investment funds that focus on other types of investments such distressed debt or real estate.

There is no exact list of every private equity megafund, but they are typically firms that manage upwards of $10 billion per fund. Below are a few examples of commonly known firms:

Middle Market

Middle Market private equity firms are much smaller than megafunds in terms of the amount of money they manage, also known as Assets Under Management (AUM). There are many different types of Middle Market firms, ranging from generalist firms (firms that invest in all attractive opportunities, regardless of the industry) to more specialized funds (firms that focus on a specific industry or a geographic region).

Middle Market firms make smaller investments in lesser known companies that are more often private companies (e.g. family or founder owned businesses). Depending on their fund size, Middle Market firms will purchase companies with Enterprise Value anywhere between $50mm and $1B. As you can see, this is a big range of value, so there are many PE firms that focus on a particular size of transactions (e.g. lower middle market vs. middle market) in order to gain competitive advantage and get to know a broader set of companies that meets the firm’s investment criteria.

Below are a few examples of middle market PE firms, but this is far from an exhaustive list of very successful investors.