IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2507.12436.html

The Case against Scale: Empirical Evidence of Underperformance in Large Secondary Funds

Author

Listed:
  • Jitesh Gurav

Abstract

The paper analyses the increasing popularity of large funds in the secondary private equity market, which are pegged on the perceived larger scale advantages of operational efficiency and fewer manager relationships (Reuter & Zitzewitz, 2021). However, it has been proved empirically that smaller funds perform better than the big ones in terms of their internal rates of return (IRRs). This work questions this authoritative view, providing evidence of outperformance of smaller funds relative to their larger counterparts. This research shows us the benefits that smaller funds possess. Thus, investors must revisit their allocation strategy to prioritize larger funds automatically (Gualandris et al.,2021).

Suggested Citation

  • Jitesh Gurav, 2025. "The Case against Scale: Empirical Evidence of Underperformance in Large Secondary Funds," Papers 2507.12436, arXiv.org.
    • Handle: RePEc:arx:papers:2507.12436
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2507.12436
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. L. Kruitwagen & K. T. Story & J. Friedrich & L. Byers & S. Skillman & C. Hepburn, 2021. "A global inventory of photovoltaic solar energy generating units," Nature, Nature, vol. 598(7882), pages 604-610, October.
    2. Raghunandan, Aneesh & Rajgopal, Shiva, 2022. "Do ESG funds make stakeholder-friendly investments?," LSE Research Online Documents on Economics 115234, London School of Economics and Political Science, LSE Library.
    3. Jonathan Reuter & Eric Zitzewitz, 2021. "How Much Does Size Erode Mutual Fund Performance? A Regression Discontinuity Approach [Mutual fund’s R2 as predictor of performance]," Review of Finance, European Finance Association, vol. 25(5), pages 1395-1432.
    4. Aneesh Raghunandan & Shiva Rajgopal, 2022. "Do ESG funds make stakeholder-friendly investments?," Review of Accounting Studies, Springer, vol. 27(3), pages 822-863, September.
    5. Na Dai, 2022. "Empirical Research on Private Equity Funds: A Review of the Past Decade and Future Research Opportunities," Review of Corporate Finance, now publishers, vol. 2(3), pages 427-450, December.
    6. Maksim Belitski & Christina Guenther & Alexander S. Kritikos & Roy Thurik, 2022. "Economic effects of the COVID-19 pandemic on entrepreneurship and small businesses," Small Business Economics, Springer, vol. 58(2), pages 593-609, February.
    7. Riddiough, Timothy J. & Wiley, Jonathan A., 2022. "Private Funds for Ordinary People: Fees, Flows, and Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(8), pages 3252-3280, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Mingke & Wei, Weixian, 2025. "Modeling the economic and environmental effects of ESG preferences: A general equilibrium approach," Energy Economics, Elsevier, vol. 151(C).
    2. Zhang, Dongyang, 2023. "Does green finance really inhibit extreme hypocritical ESG risk? A greenwashing perspective exploration," Energy Economics, Elsevier, vol. 121(C).
    3. Di Tommaso, Caterina & Foglia, Matteo & Pacelli, Vincenzo, 2025. "The impact of biodiversity score on the European firm’s performance," International Review of Financial Analysis, Elsevier, vol. 106(C).
    4. Mithilesh Gidage & Shilpa Bhide & Yuriy Bilan, 2025. "Greenwashing in the Indian corporate landscape: an empirical assessment of ESG disclosures of NIFTY 50 companies," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 27(9), pages 21861-21885, September.
    5. Gibbon, Kayshani & Derwall, Jeroen & Gerritsen, Dirk & Koedijk, Kees, 2025. "Renaming with purpose: Investor response and fund manager behaviour after fund ESG renaming," Journal of International Money and Finance, Elsevier, vol. 152(C).
    6. Heena Thanki & Sweety Shah & Harishchandra Singh Rathod & Ankit D. Oza & Dumitru Doru Burduhos-Nergis, 2022. "I Am Ready to Invest in Socially Responsible Investments (SRI) Options Only If the Returns Are Not Compromised: Individual Investors’ Intentions toward SRI," Sustainability, MDPI, vol. 14(18), pages 1-17, September.
    7. Li, Qianqian & Watts, Edward M. & Zhu, Christina, 2024. "Retail investors and ESG news," Journal of Accounting and Economics, Elsevier, vol. 78(2).
    8. Mariya Gubareva & Zaghum Umar & Tatiana Sokolova & Valentina Antonyuk, 2023. "For whom does it pay to be a moral capitalist? Sustainability of corporate financial performance of ESG investment," PLOS ONE, Public Library of Science, vol. 18(5), pages 1-14, May.
    9. Wang, Wenjiao & Sun, Ziyuan & Wang, Lan, 2025. "Does ESG rating divergence exacerbate management tone manipulation? − Empirical evidence based on MD&A text," Journal of Business Research, Elsevier, vol. 197(C).
    10. Wu, Yuhui & Tian, Yanan & Han, Jie & Zhang, Zhilun, 2025. "Information or power? Financial infrastructure and carbon information disclosure," International Review of Financial Analysis, Elsevier, vol. 106(C).
    11. Olakunle Oloruntobi & Adel Gohari & Safizahanin Mokhtar & Kasypi Mokhtar & Siti Marsila Mhd. Ruslan, 2025. "Comparative analysis of long-term returns, financial considerations, and measurement challenges in future ESG investing," Journal of Asset Management, Palgrave Macmillan, vol. 26(3), pages 271-297, May.
    12. Costantiello, Alberto & Leogrande, Angelo, 2023. "The Determinants of CO2 Emissions in the Context of ESG Models at World Level," MPRA Paper 117110, University Library of Munich, Germany.
    13. Hüseyin Öcal & Tarik Yilmaz & Anton Abdulbasah Kamil, 2025. "The Impact of Environmental, Social and Governance (ESG) Pillar Scores on Banking Sector Stock Returns: An Empirical Analysis of Banks in the MSCI Emerging Market Index," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 11(2), pages 163-181.
    14. Hussaini Bala & Abdulaziz Al Naim & Abdulrahman Alomair, 2025. "Demystifying the influence of board gender diversity on the nexus between ESG performance and carbon emissions," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-15, December.
    15. Liu, Maotao & Fang, Xubing, 2025. "How does green investor entry affect corporate carbon performance? Evidence from China," Renewable Energy, Elsevier, vol. 244(C).
    16. Davidson Heath & Daniele Macciocchi & Roni Michaely & Matthew C. Ringgenberg, 2023. "Does Socially Responsible Investing Change Firm Behavior?," Review of Finance, European Finance Association, vol. 27(6), pages 2057-2083.
    17. Tang, Tiantian & Guo, Jiahui & Zou, Liping & Luo, Lu, 2025. "ESG fund performance and fund manager trading strategy: Evidence from China," Global Finance Journal, Elsevier, vol. 67(C).
    18. Hu, Shiyang & Li, Xiao & Tian, Gary Gang & Zhao, Jianyu, 2024. "From debt breaches to employee safety: The hidden power of banking interventions," The British Accounting Review, Elsevier, vol. 56(6).
    19. Liang, Hao & Ng, Lilian & Yoon, Aaron, 2025. "Editorial: What have we learned about green and climate finance?," The British Accounting Review, Elsevier, vol. 57(5).
    20. Suzanne Haley & Matthew Shaffer & Richard Sloan, 2026. "Do sustainability reports contain financially material information?," Review of Accounting Studies, Springer, vol. 31(1), pages 1-36, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2507.12436. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.