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

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  • 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
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    File URL: http://arxiv.org/pdf/2507.12436
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    References listed on IDEAS

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    2. 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.
    3. 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.
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    6. Aneesh Raghunandan & Shiva Rajgopal, 2022. "Do ESG funds make stakeholder-friendly investments?," Review of Accounting Studies, Springer, vol. 27(3), pages 822-863, September.
    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.
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