1. Introduction and How Megafunds Work
Whilst there is no single agreed definition of private equity megafunds, they are typically large investment vehicles holding at least $5bn in capital (PitchBook). A more stringent criterion used by industry professionals requires a minimum of $100bn in total assets under management, with a flagship fund of around $10bn and individual deals averaging upwards of $1bn (Mergers and Inquisitions).
Megafunds gather capital from large institutional investors such as pension funds and insurance companies and use it to acquire companies using both equity and borrowed money. The fund continually grows the value of the companies over several years before they are sold and profits are returned to the initial investors. What differentiates megafunds from typical private equity funds is their scale, especially the size of the companies, the volume of acquired capital and the variation of strategies they run.
Megafunds originate from leveraged buyout (LBO) strategies, where acquisitions are predominantly financed via debt using the firm’s cash flows for remuneration. This model developed over time into larger scale transactions for instance KKR’s buyout of RJR Nabisco.
The 2008 financial crisis was a key driver in redefining megafunds. As cheap debt dried up and dealmaking slowed, larger firms capitalised on the downturn by acquiring distressed assets and diversifying into industries such as infrastructure, private credit, and real estate. This shift strengthened megafunds and concentrated investor capital around the largest platforms. This transformation is evident in the industry today – private market assets under management grew from $9.7tn to $22.6tn by 2022 (Moonfare) and in 2024 alone, megafunds comprised 43.7% of all private equity capital in the US despite representing only 3.5% of fund count (Cherry Bekaert).
2. Why Mega Funds Keep Growing and Their Advantages
The continued dominance of megafunds is driven by advantages that smaller funds cannot replicate.
A key appeal for investors is simplicity; megafunds enable exposure to multiple private market strategies simultaneously, reducing the need to manage several fund relationships and associated due diligence and monitoring costs. (PitchBook).
Beyond convenience, the large scope of megafunds allows them to offer services that smaller managers cannot match such as detailed reporting and co-investment opportunities. Research carried out by McKinsey also shows that return outcomes are significantly more consistent in super-cap segments as opposed to smaller funds (Moonfare).
One of the most distinctive advantages of megafunds is deal-making power. They have access to an exclusive tier of transactions such as cross-border mergers which require billions in equity, therefore making such deals inaccessible to smaller investors. Recent examples include the $55bn acquisition of Electronic Arts and Sycamore Partners’ $23.7bn buyout of Walgreens Boots Alliance – transactions that only megafunds can execute (PwC).
3. Challenges of Scale
Despite the benefits of the megafunds, there are some disadvantages that arise when they grow in size. Frequently they are pushed to find huge investment opportunities that absorb a lot of capital. This means that the deals can turn out to be not that beneficial if the valuation multiples are elevated because of intense competition. Heightened competition and market visibility means that fewer niche opportunities can be explored.
Another challenge is to manage a huge portfolio consisting of multiple sectors and geographies. That is because it means slower decision-making and potentially less accountability. On the other hand, smaller funds can rely on a more hands-on approach and can thus create more value. An example of how megafunds that are under pressure to deploy large amounts of capital may overpay in competitive auctions is Thoma Bravo’s $6.4bn acquisition of Medallia, which has struggled post-buyout, with lenders marking down debt values. The firm may have been overvalued at entry, which shows the competitive and high-priced environment megafunds often have to face (Barron’s)
Evidence from the broader asset management literature also suggests that size can create performance constraints. A 2015 paper by Lubos Pastor for the Journal of Financial Economics concluded that as the size of the active mutual fund industry increases, a fund’s ability to outperform passive benchmarks decreases. Moreover, a 2018 study by Ping McLemore found that fund mergers resulted in deteriorating performance of the acquiring funds. It showed that liquidity played an important role in the negative relationship between size and performance. A 2020 paper by Pastor studied trade-offs among active managers and found that there are diseconomies of scale among these managers (MorningStar). Additionally, if capital availability is the main driver of the investments, funds may start prioritising deployment instead of selectivity. This frequently results in suboptimal investments (Bernstein).
4. How Big is Too Big?
The constant growth of these funds raises a fundamental question: when does size start to hinder performance instead of improving it? While bigger funds have advantages like economies of scale and better access to markets, excessive size can alter investment dynamics.
The key limitations such as capital deployment pressure which makes auctions highly competitive, and makes valuation multiples significantly higher can make it harder to get returns on investment : this dynamic introduces the risk of return compression. When prices are high there is less room to yield high returns.
Additionally, scale can dilute operational focus. Managing a lot of companies makes it harder to add value to investments.
However, mega funds retain clear advantages, including access to cheaper financing, stronger brand recognition, and the ability to execute complex transactions.
Ultimately, “too big” is not defined by a specific threshold, but by the moment when capital availability begins to dictate investment decisions, rather than discipline and selectivity.
5. The Future of Private Equity Funds
Despite concerns regarding size, huge funds will likely remain a dominant force in private markets. They are changing, moving away from traditional buyout models and towards more diverse and flexible investment strategies.
One key trend is the continuous growth of funds with some industry players expecting to see funds over $50bn in the future. This expansion is largely driven by institutional investors like pension funds and sovereign wealth funds which prefer to put their money into a few established managers. For example Blackstone’s $26bn real estate fund and KKR’s $23bn North America fund show that there is still a lot of demand for investment vehicles.
At the same time huge funds are doing more than just buyouts. Firms like Apollo, Blackstone and KKR are now investing in credit, infrastructure and real assets. Apollo, for instance, has become a major player in private credit, deploying billions into direct lending as an alternative to traditional bank financing.
Another important change is that huge funds are holding onto investments for longer and using permanent capital vehicles. Blackstone’s Core Equity strategy is an example of allowing the firm to hold high-quality assets for a long time instead of selling them after 5-7 years.
Huge funds are also becoming more important in financial markets. With trillions of dollars under management they are increasingly influencing money flows, corporate governance and financing conditions. For example KKR’s acquisition of a stake in Telecom Italia’s network infrastructure shows how private equity firms are now involved in important sectors that were once dominated by governments or public markets.
Looking ahead, the private equity landscape will likely become more segmented. Huge funds will dominate deals and global transactions using their size and diversity to their advantage. Smaller and mid-sized funds will focus on niche opportunities, with higher return potential.
In this context, the success of funds will depend not just on their size but on their ability to adapt. Those that can balance size with investment strategies and genuine value creation will stay competitive while others may struggle to justify their growing size.
Sources
PitchBook: What are mega-funds in private equity?, https://pitchbook.com/blog/what-are-mega-funds-in-private-equity
Mergers & Inquisitions: Private Equity Mega-Funds: Careers, Recruiting & Pros/Cons, https://mergersandinquisitions.com/private-equity-mega-funds/
Moonfare: Some mega funds made fundraising history in 2023. What’s their appeal?https://www.moonfare.com/blog/mega-funds-private-equity
Cherry Bekaert: Private Equity Report: 2024 Trends & 2025 Outlook, https://www.cbh.com/insights/reports/private-equity-report-2024-trends-and-2025-outlook/
PwC: Global M&A trends in private equity and principal investors: 2026 outlook, https://www.pwc.com/gx/en/services/deals/trends/private-equity.html
MorningStar: Are mega super funds’ returns set to fall?,
https://www.morningstar.com.au/retirement/are-mega-super-funds-returns-set-to-fall
Barron’s: Software Firm Medallia Is a Problem for Private Credit. Blackstone, Thoma Bravo Have Exposure,
Bernstein: Why Smaller Is Better When It Comes to Private Equity,
Private Equity International, https://www.privateequityinternational.com/mega-funds-how-big-is-too-big/
PitchBook, https://pitchbook.com/blog/what-are-mega-funds-in-private-equity
Mergers & Inquisitions, https://mergersandinquisitions.com/private-equity-mega-funds/
Future Standard, https://www.futurestandard.com/insights/chart-of-the-week/buyout-performance-by-size
Collateral, https://collateral.com/blog/private-equity-fund-size-constraints
Aalto Capital, https://aaltocapital.com/the-rise-of-megafunds-how-large-players-are-dominating-private-market-fundraising/
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